Key Points
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Rocket Lab recently announced it’s on track to acquire Iridium Communications in an $8 billion deal.
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Acquiring Iridium’s mobile satellite technologies could accelerate Rocket Lab’s path to profitability.
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Rocket Lab remains a high-risk, high-reward stock, but its latest acquisition move could pay off in big ways.
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Rocket Lab (NASDAQ: RKLB) is a leading player in the space tech industry, and its share price has seen strong bullish momentum over the last year as interest in the category has swelled, the business has delivered strong quarterly results, and it has inked new partnerships and contracts. The latest valuation surge for the company came after it announced an $8 billion deal to buy Iridium Communications (NASDAQ: IRDM).
But while Rocket Lab stock has gained roughly 196% over the last year, it’s still down roughly 29% from its lifetime high. Should investors be pouncing on the stock right now?
Acquiring Iridium looks like a smart move, but Rocket Lab is still speculative
On June 29, Rocket Lab announced that it had entered into a deal to acquire Iridium Communications at an $8 billion valuation. The half-cash, half-stock deal looks poised to close in the second half of next year and could have a transformative impact on Rocket Lab’s business.
While the space tech specialist has already been making moves to expand its capabilities in satellite technologies and communication services, acquiring Iridium should dramatically accelerate its initiatives in these categories. Acquiring Iridium’s satellite-based mobile communications portfolio should effectively make Rocket Lab a much bigger competitive threat to Space Exploration Technologies‘ (SpaceX’s) Starlink business and allow it to leverage cost synergies stemming from its leading rocket-launching technology base.
On the other hand, the deal will have a significant dilutive impact on shareholders and require the company to take on new debt. There are also reasonable questions about whether valuations for space stocks have become stretched to the point that strong near-term returns are less likely and whether there are potential adverse valuation impacts related to trading for SpaceX and broader macroeconomic trends.
While I think the Iridium acquisition is a smart move and better positions Rocket Lab to deliver big wins for long-term shareholders, the stock is still probably not an ideal portfolio fit unless you have a high risk tolerance and a long time horizon for the holding.
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Keith Noonan 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.
