Globalstar: Telecom Turnaround?

12/05/2014 7:00 am EST


George Putnam

Editor, The Turnaround Letter

Our latest featured recommendation is a leading provider of satellite-based communication services; it was originally founded in 1991 as a partnership between Loral Space and Qualcomm, explains George Putnam, editor of The Turnaround Letter

Globalstar (GSAT) was unable to service its debt from its narrow market—serving ships, oil rigs, desert locations, and the like—and the company filed for Chapter 11 in 2002. 

When it emerged from bankruptcy in 2004, Thermo Companies—controlled by a successful entrepreneur named Jay Monroe—acquired 65% of its stock. 

Since then, Monroe has invested more than $600 million in Globalstar, which has allowed it, among other things, to upgrade its network of satellites.

The company controls a large block of radio spectrum that it is currently developing for possible use as a new Wi-Fi network. 

As investors began to appreciate the potential value of this new Wi-Fi network, the stock climbed from below $1 to above $4 earlier this year. 

Then, beginning in late September, a hedge fund called Kerrisdale, which had a short position, launched a very public attack on the company, pushing the stock below $2. 

Globalstar has refuted all of Kerrisdale’s arguments, but the attack apparently spooked investors.

Meanwhile, the real upside in the stock comes from the value of the spectrum that it controls. Globalstar is developing this spectrum to offer Wi-Fi through what it calls Terrestrial Low Power Service (or TLPS). 

As the traditional spectrum used for Wi-Fi becomes overcrowded in many areas, there could be a substantial market for TLPS, both in the US and globally. The company is quite far along in the process to obtain Federal Communication Commission approval for TLPS. 

As with any new technology, there are certainly risks that TLPS will not perform as expected.  But we believe the upside potential in the stock outweighs those risks. 

Moreover, even if TLPS proves disappointing, Globalstar’s substantial holdings of spectrum could have value for other uses. 

The entire currently useable spectrum is getting increasing crowded, and over the years, we’ve seen a number of companies get acquired at good prices just for their spectrum. 

Jay Monroe’s big investment in the company also gives us some comfort.  He is an experienced telecommunications investor and he has a substantial incentive to create value for Globalstar’s shareholders.

Globalstar’s stock may continue to be volatile as its Wi-Fi technology is tested, but we see significant gain potential for patient investors who can handle the risks. 

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