Wunderlich Securities is not a big fan of one of Seth Klarman’s biggest winning stock trades: ViaSat, Inc. (NASDAQ:VSAT). The brokerage firm lowered it’s rating to sell and issued a rating on the stock and issued a rather negative report today.

Viasat

Core business model questioned

The Wunderlich report notes that recently reported earnings were below expectations but also challenged the company’s core business model.  “We regard ViaSat as a leader in tackling complex digital communications challenges,” the report said. “However, the dynamics of consumer broadband increasingly appear to have shifted from the original mission of ViaSat-1, which was high-speed connectivity. Since then, volume consumer usage has evolved from niche peer- to-peer file sharing to mainstream consumers large high-definition files heading in the direction of Ultra HD.”

ViaSat, Inc. (NASDAQ:VSAT) is an innovator in space, aeronautical, maritime, and mobile communications systems for defense and commercial services. The firm is also a service provider and recently began operating the world’s highest capacity satellite for commercial broadband service, the report noted. “. ViaSat now contends with increasing market awareness of satellite service use caps (25 GB/month between 5am and midnight at the high-end).” This business challenge is the basis for Wunderlich’s sell recommendation, as they established a price target on the stock to $50, down from $53.

ViaSat by the numbers

As ViaSat, Inc. (NASDAQ:VSAT) reported earnings of $0.10 per share on revenue of $344 million, a year over year increase of 11.4%, which were within a percentage point of Wunderlich’s previous estimate. However, the earnings per share reflected increased spending on internal research and development and a courtroom drama with Space Systems/Loral was a wildcard.  While most of the reported earnings were in line with expectations, the report noted that Satellite Services yielded a big surprise, residential broadband (Exede service) shifted dramatically toward direct and more focused sales efforts in F4Q14; this yielded an increase in revenue per subscriber, but a high-teens percentage decline in gross additions and half the net subscriber adds of 4Q13.“

Overall lowered revenue volume led Wunderlich to cut its estimates.  The report noted that “all else being equal” it was leaning on cutting its price target on the stock even below its $50 target.