Wunderlich Doesn’t Like Baupost’s ViaSat Stock Pick

Wunderlich Doesn’t Like Baupost’s ViaSat Stock Pick

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.

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.”

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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.


Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)www.valuewalk.com
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