Globalstar Inc Com (NYSEMKT:GSAT)

CAPS Rating: 1 out of 5

The Company is a provider of mobile voice and data communication services via satellite. The Company offers voice and data communications services to government agencies, businesses and other customers in over 120 countries.

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Player Avatar NetscribeTelecom (78.37) Submitted: 3/12/2007 8:32:07 AM : Underperform Start Price: $10.97 GSAT Score: +111.35

Globalstar, Inc. (Globalstar) is a provider of mobile voice and data communication services via satellite. The company uses 43 in-orbit satellites and 25 ground stations, to provide its services. The company’s foot print spans 120 countries across the world and its customers includes oil and gas industry , government, mining, forestry, commercial fishing, utilities, military, transportation, heavy construction, emergency preparedness, and business continuity as well as individual recreational users.
The company’s operating performance has been satisfactory. It is generating cash at operating level. However the biggest drivers for the company going forward would be their new handset GPS-1700 and availability/approval of spectrum for ancillary terrestrial component (ATC).
GPS-1700 has better form factor and is 25% less expensive than its predecessor GPS-1600. This can improve company’s penetration and enable company to ramp up its operations. The company has 27.85 MHz of spectrum, of which 11 MHz has been approved for ATC. The company expects to receive approval for all 27.85 MHz in fiscal 2007.Such a development would increase the value of the spectrum as it would enable the company to deploy a hybrid satellite/terrestrial network.
The company does face certain risks. The chief among them would be the class action suit filed against the company alleging that the Prospectus failed to disclose that Globalstar's constellation of satellites was degrading at an increasingly rapid rate and that the length of their commercial viability was quickly decreasing.
Company’s stock has underperformed since its listing in November, 2006 but its valuation still seems rich. The company’s operational leverage is also on the higher side. Hence any downswing in its average revenue per user could accentuate its operational risk and can hurt its bottom-line significantly. The company is unlikely to generate free cash flows for next few years as it requires more than $1 billion for its capital expenditure. All these facts coupled with sentimental overhang of lawsuit would likely lead to its underperformance going forward.

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