Rocket Lab Just Took a Page From the SpaceX's Playbook. Time to Buy?
Key Points
Rocket Lab will acquire satellite company Iridium Communications.
The deal was unanimously approved by both companies' boards of directors.
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Shares of Rocket Lab (NASDAQ: RKLB) climbed sharply higher on Monday, gaining as much as 12.9%. As of 11:34 a.m. ET, the stock was still up 8.9%.
The catalyst that sent the rocket specialist higher was a "transformational" deal that will better position the company in the space race.
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Blasting into orbit
Rocket Lab announced it will acquire satellite communications provider Iridium Communications (NASDAQ: IRDM) for $54 per share in a cash-and-stock deal valued at roughly $8 billion. Rocket Lab called the deal "one of the most transformative deals in the space industry," integrating its launch capabilities with Iridium's global satellite communications system, global spectrum access, and its 2.55 million customers.
Iridium also boasts a "500-plus strong partner ecosystem" of government, defense, aviation, maritime, and commercial users.
William Blair analyst Louie DiPalma hailed the deal, saying, "While spectrum is the central asset, Iridium brings much more to the table for Rocket Lab than just spectrum." The analyst highlighted Iridium's new alternative position navigation and timing Application-Specific Integrated Circuit (ASIC). The groundbreaking new processor is an ultra-small chip designed to "provide alternative positioning, navigation, and timing (PNT) capabilities anywhere on Earth," according to the company.
The analyst also cited the company's space-based networking, flight tracking, satellite voice communications network, and several major Department of Defense contracts.
In an investor presentation, Rocket Lab said it sidestepped three of the biggest challenges associated with building a satellite communication business: access to spectrum, the long lead times required to deploy satellites and begin generating revenue, and the years needed to build a sustainable customer base and cash flow.
This deal will better position Rocket Lab to compete with Space Exploration Technologies (NASDAQ: SPCX), aka SpaceX, whose recent IPO has shone a spotlight on the burgeoning space race. Indeed, Rocket Lab has been called a "mini-SpaceX," and its expansion into satellite communications has put it into more direct competition with its larger rival.
Pending shareholder and regulatory approval, the deal is expected to close in mid-2027.
After the deal was announced, Rocket Lab stock was selling for roughly 75 times sales. While that might sound pricey, SpaceX stock is selling for 110 times sales, making Rocket Lab's valuation more appealing.
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Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.
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