We came across a bullish thesis on KVH Industries, Inc. (KVHI) on Substack by Wooodchuck Capital. In this article, we will summarize the bulls’ thesis on KVHI. KVH Industries, Inc. (KVHI)’s share was trading at $5.11 as of Nov 15th.
A satellite array in Earth’s orbit, showing the vast scope of the company’s space-based solutions.
KVH Industries (KVHI), traditionally known for its mobile connectivity and inertial navigation systems, has undergone a significant transformation in recent years. In August 2022, the company divested its Fiber Optic Gyroscope and Inertial Navigation Systems businesses for $55 million, sharpening its focus on maritime connectivity services. However, the maritime sector, which KVH’s core business revolves around, is facing significant disruption with the rise of Starlink’s Low-Earth Orbit (LEO) satellite services. Starlink offers maritime customers faster speeds, lower latency, and reduced costs compared to traditional Geostationary Earth Orbit (GEO) satellites, which KVH previously used by leasing bandwidth from providers like Intelsat and SES. This has led to a shift in customer preferences, as Starlink’s LEO service has become a major competitor in the maritime communications space.
In response to this disruption, KVH has pivoted by forming a strategic partnership with Starlink, reselling its services while offering bundled value-added solutions, including installation, customer support, and hybrid connectivity options. While Starlink has gained traction, many large maritime vessels still require hybrid connectivity that combines both GEO and LEO systems. KVH’s hybrid solutions ensure global coverage, reliability, and cost efficiency while addressing regulatory requirements, which allows it to remain a key player in the maritime industry despite Starlink’s disruptive presence.
KVH’s operational shift has been marked by a series of strategic moves, including the closure of its TracVision TV antenna and TracPhone VSAT product lines in February 2024. This decision followed eight consecutive quarters of revenue declines and five quarters of negative product margins, with Starlink identified as a primary disruptor. The company also laid off 20% of its workforce, streamlined operations, and focused on enhancing its services business. Despite these challenges, KVH continues to serve its established customer base of 7,000 vessels worldwide, with its upgraded VSAT network supported by Ku-band capacity from Intelsat and SKY Perfect JSAT. Additionally, the company has seen an accelerated adoption of Starlink services, installing 1,000 Starlink terminals—the fastest installation rate in its history.
Looking ahead, KVH projects 2024 revenue between $117 million and $127 million, with EBITDA ranging from $6 million to $12 million. Despite the operational challenges and margin pressure in hardware sales, its services business continues to maintain healthy margins of 43%. The company expects to improve EBITDA margins as a result of cost-cutting measures and the closure of its unprofitable product lines. KVH forecasts a modest revenue growth to $130 million in 2025, with a projected 15% EBITDA margin, which would lead to approximately $20 million in EBITDA. If the company achieves this target, applying a 10x EBITDA multiple would suggest a valuation of around $12.50 per share, representing a 150% premium to the current stock price.
KVH’s market valuation has been under pressure due to Starlink’s disruptive impact, but activist investors have started to take notice of the company’s potential. JEC Associates, Bradley Louis Radoff, and Black Diamond Capital, with significant stakes in the company, have positioned themselves as key players who could push for shareholder-friendly actions, such as dividends, share buybacks, or strategic acquisitions. The presence of these activists reflects confidence in KVH’s strategy and its ability to adapt to the changing satellite landscape.
In conclusion, KVH Industries is at a pivotal moment in its history. The company’s shift to a hybrid connectivity model, coupled with strategic cost reductions, positions it to continue playing a vital role in maritime communications despite the rise of Starlink. The involvement of activist investors could also drive further value creation, potentially leading to a rerating of the stock. With the market underestimating its potential, KVH is well-positioned for growth, especially if its upcoming Starlink-related initiatives yield positive results.
KVH Industries, Inc. (KVHI) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held KVHI at the end of the second quarter which was 5 in the previous quarter. While we acknowledge the risk and potential of KVHI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KVHI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.