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Why Intelsat S.A. Stock Just Dropped 11%

By Rich Smith - Oct 26, 2018 at 3:31PM

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Earnings can surprise. Why take that risk?

What happened

2018 has been a fabulous year to own Intelsat (INTE.Q) stock. The company has delivered a steady stream of positive press releases to support it and there's a very real possibility that it will be generating strong free cash flow for years to come. As a result, shares of this satellite communications star have skyrocketed this year -- up nearly 600%!

Yet today, Intelsat stock is sagging, down 10.9% as of 3 p.m. EDT. Why?

Satellite beaming transmission to Earth

"Hey, Houston! Did you know Intelsat reports earnings next week? What do you think they're going to say?" Image source: Getty Images.

So what

With no substantive news out today to explain the stock's move lower, I have an educated guess as to what's behind Intelsat's weakness today. Last week, as you may recall, Intelsat announced that it's preparing to report Q3 earnings. The date and time for this release is the morning of Oct. 30 -- just on the other side of the weekend.

With no other news to explain Intelsat's sudden weakness, my hunch is that investors who've profited mightily from the stock's run-up are now reviewing their portfolios and wondering: Is a 600% profit enough? Maybe it would be a good idea to take some chips off the table and cash in some profits rather than take the risk Intelsat says something frightening the day before Halloween.

Now what

In fact, I think that's probably not a bad question to ask. After all, analysts who follow this stock aren't expecting a whole lot of good news out of Intelsat next week. Forecasts call for a per-share loss of $0.32 for Intelsat's fiscal third quarter -- then another loss in Q4, a loss for the year... and a loss next year, as well!

That's an awful lot of times Intelsat may be forced to use the word "loss" when it reports earnings and gives guidance next week -- maybe enough times to spook investors into rethinking whether they really want to be heavily invested in a debt-ridden, money-losing venture like Intelsat.

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