Satellite radio and long-range communications service provider ViaSat (NASDAQ:VSAT) is reporting earnings tonight, just as the hurricane season is heating up. Will rescue teams have ViaSat walkie-talkies in their belt clips?

What analysts say:

  • Buy, sell, or waffle? Nine analysts follow ViaSat. Three of them advocate a "hold" policy, and the other six are shouting "buy!"
  • Revenues. Analysts expect, on average, to see tomorrow's sales number come in 12.6% higher than last year, at $112.5 million.
  • Earnings. They're forecasting a roughly 14% increase in profits, to $0.25 per share.

What management says:
ViaSat recently acquired a small video-surveillance specialist called Enerdyne, giving ViaSat access to yet another handful of defense contracts and new technical expertise. It's also starting to sell secure battlefield communications systems to other countries, including Portugal, Turkey, and Germany, and management expects to expand that strategy in the future. It's a global economy, and the worldwide military market should provide plenty of green fields in which ViaSat's sales team can frolic for a long time to come.

What management does:
ViaSat is taking its expanding gross margin and putting the money to good use through growing research and development efforts. Management seems comfortable with the current operational and net margins while the company develops its next generation of long-range satellite communications systems.

Margins %

12/04

4/05

7/05

9/05

12/05

3/06

Gross

22.9

24.2

23.2

23.5

24.1

24.6

Op.

4.2

5.9

5.2

5.4

5.8

6.4

Net

4.8

5.6

5.8

6.0

6.0

5.4
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I think that R&D spending is a smart use of capital for technology-heavy companies like ViaSat. Sure, the company stands to gain from military efforts in Iraq and Afghanistan, as well as from what the experts say will be another brutal hurricane season. But it's not the only choice for such needs, and has to stay one step ahead of Radyne (NASDAQ:RADN), General Dynamics (NYSE:GD), and L-3 Communications (NYSE:LLL). R&D is how you get that done.

In all honesty, there's room for several players in the satellite radio market, though. ViaSat's problem isn't market saturation. Indeed, it's not really limited by market conditions to any significant degree. The stock itself, however, looks overpriced compared to its peers, no matter what metric you choose as the basis of comparison.

The market clearly expects great things from this company, and the pressure to perform is on. If ViaSat misses estimates even by a little bit or, worse yet, lowers forward guidance tonight, you'll see another huge price drop. There seems to be little room for an upward spike on good news, though. Watch this from the sidelines tonight, or if you want a more rewarding experience, dig deeper into Radyne instead.

Customers:

  • Honeywell (NYSE:HON)
  • Boeing (NYSE:BA)
  • General Dynamics
  • Northrop Grumman (NYSE:NOC)
  • U.S. Department of Defense

Radyne is a Motley Fool Hidden Gems recommendation. You can view the entire Hidden Gems scorecard with yourfree trial.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure gives you crystal clear reception, no matter where you are.