Baron Funds Has High Expectations for Iridium Communications

Fund ups stake in worldwide satellite communications network Continue reading... Read More...

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="On Oct. 31, Baron Funds, the asset management firm founded by Ron Baron (Trades, Portfolio), disclosed it increased its stake in Iridium Communications Inc. (NASDAQ:IRDM) by 13.87%.” data-reactid=”11″>On Oct. 31, Baron Funds, the asset management firm founded by Ron Baron (Trades, Portfolio), disclosed it increased its stake in Iridium Communications Inc. (NASDAQ:IRDM) by 13.87%.

Baron Funds is a long-term asset management firm that places heavy emphasis on researching its investments, with the view that people are the key drivers of a successful business and that successful business growth relies on open-ended opportunities and competitive advantages. Its CEO is Ron Baron, who founded the firm in 1982. The firm is currently valued at $24.94 billion and has a low turnover rate of 4%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="According to GuruFocus Real-Time Picks, a Premium feature, Baron’s firm added 1,608,042 shares to its holding of Iridium Communications Inc. (NASDAQ:IRDM), impacting the equity portfolio by 0.16%. The stock traded at an average price of $24.47 per share. Baron Funds now owns 13,202,726 shares of Iridium in total.” data-reactid=”32″>According to GuruFocus Real-Time Picks, a Premium feature, Baron’s firm added 1,608,042 shares to its holding of Iridium Communications Inc. (NASDAQ:IRDM), impacting the equity portfolio by 0.16%. The stock traded at an average price of $24.47 per share. Baron Funds now owns 13,202,726 shares of Iridium in total.

Iridium Communications is a satellite phone and internet company with 66 low-orbit satellites that offer complete global coverage, data, voice and short message services, even in the most remote areas of the world. Its phone service plans are a favorite of the military and media, as well as individuals and corporations who live in or frequent locations where other phone networks don’t provide service. The company also rents out satellite hotspots and U.S. phone numbers, among other communications products.

The share price of Iridium Communications has increased approximately 335.68% since Baron first bought it in the second quarter of 2014.

The company has a market cap of $3.23 billion and an enterprise value of $4.91 billion. It currently has a price-earnings ratio of 2.11, a cash-to-debt ratio of 0.09, an interest coverage of 0.09 and an operating margin of 1.8%. In other words, the company’s financial strength isn’t looking so good. GuruFocus has assigned it a financial strength score of 3 out of 10 and a profitability score of 6 out of 10. The company’s cash has been decreasing while its debt has been increasing.

However, unlike many companies, Iridium has a bit of a safety net when it comes to debt. As an international, military and media favorite, its chances of actually going bankrupt are low, despite its Altman Z-Score of 1.16. Its cash is on fire, but if it burns up, someone will likely bail it out. Iridium is one of the few companies that has been able to increase its share price despite lackluster earnings.

Four Wall Street analysts have offered 12-month forecasts for shares of Iridium Communications with a median target price of $31. These optimistic estimates are the product of observations that the company’s assets and earnings potential may have become undervalued in light of the emergence of rival sat-com services offered by SpaceX, Amazon (NASDAQ:AMZN) and OneWeb. Analysts expect Iridium’s Certus Broadband and Narrowband services to bring in revenue growth in the upcoming years, and many consider its space-based air traffic monitoring service Aireon to be underappreciated by investors.

Baron Funds currently holds 10.07% of Iridium’s outstanding shares, making it the second-largest institutional owner of the company.

Disclosure: Author owns no shares in any of the stocks mentioned.