JPMorgan reaffirms its top mid-cap pick in telecom

JPMorgan analyst Sebastiano C Petti reiterated ViaSat Inc (NASDAQ:VSAT) as the firm's top mid-cap pick in the telecom sector, maintaining the stock on the J.P. Morgan U.S. Equity Analyst Focus List despite lowering the price target to $120 from $130. The analyst cited compelling risk/reward dynamics driven by an underappreciated mobile satellite services spectrum portfolio and accelerating momentum in the company's Defense and Advanced Technologies segment, even as pressure mounts in the Communications Services business.

Petti highlighted Viasat's Defense and Advanced Technologies franchise as a key growth driver, with backlog reaching a record $1.4 billion in the fiscal second quarter of 2027. Awards are increasingly shifting toward strategic, integrated mission programs, allowing Viasat to move into complete, funded satellite systems.

The analyst raised fiscal 2027 DAT segment EBITDA estimates by 4 percent to $333 million on stronger results and higher revenue guidance of mid-to-high-teens growth. Management noted growing demand for resilient, secure communications and space infrastructure across government and commercial markets.

However, the Communications Services segment faces near-term headwinds following American Airlines and Southwest announcements, which management expects will ultimately affect 15-20 percent of Aviation revenue. Petti lowered the CS multiple to 3.0x fiscal 2028 EV/EBITDA from 4.0x and cut the fiscal 2028 CS EBITDA estimate by 5 percent to $1.17 billion. The analyst expects commercial aircraft in service to decline in coming quarters and Aviation revenue to decline in fiscal 2028.

Despite these pressures, Petti sees multiple paths to unlock shareholder value, including crystallizing DAT value, monetizing a portion of the spectrum portfolio, and optimizing the CS asset base. 

The updated sum-of-the-parts valuation reflects a $3.5 billion enterprise value for CS, $5.7 billion for DAT, and $12.1 billion of after-tax spectrum value. With shares implying just $0.09 per MHz-pop for the spectrum portfolio, the analyst believes the ongoing Strategic Review will deliver a favorable outcome for shareholders. JPMorgan raised fiscal 2027 free cash flow estimates to $238 million on lower capex guidance of $850-900 million.