Viasat (VSAT +2.80%) stock gained ground Friday after Morgan Stanley analyst Landon Park raised his price target on the stock by (checks notes)... 325%!
By the closing bell, the satellite communications stock had gained 4.1%.
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Why Morgan Stanley likes Viasat
Previously valued at just $12 a share (but costing more than $44 per share Thursday), Park now believes Viasat stock could rise to $51 per share, gaining another 10% over the next 12 months, on top of today's gains.
Why the sudden turnaround in opinion? Morgan Stanley is both raising expectations for Viasat as the "Direct-to-Device" market develops and switching to a "sum-of-the-parts" valuation of the stock.
That would be appropriate if Morgan Stanley is anticipating spinoffs from the company, and valuing the stock on that anticipation -- rather than valuing Viasat on sales or earnings as a unified business in its current form. (Other analysts have begun taking a similar approach. Earlier in the week, William Blair posited that Viasat management may be "inspired" by L3Harris's plans to spin off its rocket engine businesses, and take a similar approach with its own defense and advanced technologies division.)
NASDAQ: VSAT
Key Data Points
Is Viasat stock a buy?
This is an interesting approach, and perhaps a necessary one, to justify Viasat's skyrocketing share price -- up nearly 400% over the past year despite being entirely unprofitable. The more so given that Viasat stock has a $6 billion market capitalization and $5.8 billion in net debt!
With $146 million in trailing free cash flow, Viasat stock has a price-to-free cash flow ratio of 41x, and an enterprise value-to-free cash flow ratio nearly twice that. Business spinoffs and spectrum sales may help to justify the valuation, but it still seems stretched to me.
For the time being, Viasat stock remains a sell for me.
