Satellite Startup Terran Orbital Corp Down 66% but Could Double

Why LLAP Stock Could Rocket Higher

Satellite communications (SATCOM) technologies are in high demand, whether for military or commercial use. By 2026, the SATCOM equipment market could rise to $53.7 billion, up from $22.0 billion in 2020. (Source: “Satellite Communication (SATCOM) Equipment Market,” MarketsandMarkets Research Private Ltd., last accessed July 13, 2022.)

Investors who want to play the strong tailwinds of the SATCOM industry might want to consider Terran Orbital Corp (NYSE:LLAP), a provider of small satellites for the aerospace and defense industries.

Terran Orbital stock debuted on the market in March after the company combined with the special purpose acquisition company (SPAC) Tailwind Two Acquisition Corp. But like the majority of SPACs, it has been awful (so far). The timing wasn’t ideal, and LLAP stock has fallen by 66% from its record high of $12.69 in March.

At its current price, however, Terran Orbital stock’s risk/reward trade-off is compelling for contrarian investors.

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Chart courtesy of StockCharts.com

High Revenue Growth Ahead for Terran Orbital Corp

The major risk with LLAP stock is that Terran Orbital Corp is just beginning to ramp up its revenues. The company’s ability to drive its revenues could be impacted by numerous factors, including competition, execution, and the current market negativity.

But for now, things look encouraging. Terran Orbital managed to increase its revenues from $21.8 million in 2019 by 14.3% to $24.9 million in 2020, and then by 64.4% to $40.9 million in 2021. (Source: “Terran Orbital Corp,” Google Finance, last accessed July 13, 2022.)

While the availability of major sell-side coverage is minimal, the company’s outlook is promising.

Terran Orbital has reported a revenue backlog of more than $200.0 million in contracts and awards as of March 28. The company has expanded its facilities to over 250,000 square feet to accommodate the growth. (Source: “Terran Orbital Begins Trading on the New York Stock Exchange Under Ticker Symbol “LLAP” and Announces Revenue Backlog Now Exceeds $200 million,” Terran Orbital Corp, March 28, 2022.)

Although the company’s revenue backlog was significant in 2021, there’s no indication regarding delivery dates.

Terran Orbital signed $162.0 million of new contracts in the first quarter and pushed its revenue backlog to $222.0 million. The company ended the quarter with a healthy $76.7 million in cash. (Source: “Terran Orbital Reports First Quarter 2022 Financial Results,” Terran Orbital Corp, May 13, 2022.)

The company is still in its early growth stage. Thus, I expect its earnings before interest, taxes, depreciation, and amortization (EBITDA); free cash flow (FCF); and generally accepted accounting principles (GAAP) diluted earnings per share (EPS) to remain negative for the near future.

Fiscal Year EBITDA (Millions)FCF (Millions)
2019-$11.8N/A
2020-$6.5-$16.6
2021-$33.7-$21.9

(Source: Google Finance, op. cit.)

Terran Orbital Corp needs to focus on increasing its revenues while managing its cost side. Eventually, the company must provide a path toward positive EBITDA and profitability.

Analyst Take

Terran Orbital stock is a speculative play at this stage. However, the potential for above-average price appreciation is significant.

The strong tailwinds in the SATCOM industry should provide incredible opportunities for Terran Orbital Corp. It’s just a matter of time and execution.