Shares of satellite communications specialist Intelsat (NYSE: I) stock are rocketing again Wednesday. Up nearly 24% at one point this morning, they’re still hanging on to a gain of 22% as of 12:15 p.m. EDT.
For this, you can thank the friendly analysts at RBC Capital Markets, who just upgraded Intelsat stock to outperform.
Formerly neutral on Intelsat stock (and with a price target of only $5 a share, according to the ratings watchers at StreetInsider.com), RBC upped its rating to outperform and it sextupled its price target to $30 a share this morning.
“Intelsat’s core business remains weak,” wrote the analyst, “but the recent equity and convertible issuance, plus lowered capex guidance has a dramatic effect on Intelsat’s gossamer thin equity part of its capital structure. We expect the FCC to release its draft [Notice of Proposed Rulemaking] this week, ultimately leading to adoption of Intelsat’s C-band proposal, worth, at the most conservative, +$19 per share.”
RBC is referring here to Intelsat’s plan, announced June 11, to sell at least 13.5 million shares, and perhaps as many as 15.5 million, at $14.84 per share (thus raising as much as $230 million gross, before fees); and to further float at least $350 million, and perhaps as much as $402.5 million, in new debt “in a private offering to qualified institutional buyers.” The debt portion of this flotation will be convertible into equity at the rate of roughly 55 shares per $1,000 in debt — thus creating the potential for a further 22.1 million shares of new dilution on top of the pure equity issuance.
Result: Intelsat is laying the groundwork for growing its share count by some 37.6 million shares, which would bring its share count to 173.8 million, and dilute existing shareholders by about 22%. On the other hand, it’s also raising about $732.5 million in cash (before fees), which would permit it to retire about 5% of its current $14.5 billion debt load.
Investors seem to like the idea — and especially RBC’s assertion that a favorable FCC ruling would add $19 to the value of their Intelsat stock. Personally, I think they should pay more attention to the fact that even if all goes as planned, 95% of Intelsat’s mammoth debt load will remain intact — $13.8 billion worth.
Until Intelsat makes a more serious attempt to address this issue, I expect the stock to remain as volatile as ever.
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