Rocket Lab's Iridium Deal Gets a Boost from Strong Earnings

Iridium Communications reported third-quarter 2026 earnings on Tuesday, October 20, and the results were impressive. The satellite communications company posted earnings per share of $0.98, nearly triple the $0.34 that Wall Street analysts had expected. Revenue came in at $245.7 million, also beating forecasts of $236.3 million.

The strong performance was largely driven by Iridium's acquisition of Aireon, a space-based air traffic surveillance company, which it reacquired in July. This acquisition contributed significantly to an 8% year-over-year revenue increase and was a major factor in the earnings beat. Aireon operates the world's only space-based ADS-B air traffic surveillance system, a unique asset that Iridium now controls.

Meanwhile, Rocket Lab (RKLB) is in the process of acquiring Iridium in an $8 billion deal, expected to close in mid-2027. Iridium shareholders have already approved the merger. As a result, Iridium's good news is effectively Rocket Lab's good news, and RKLB stock has risen 4.5% since the earnings report, while Iridium shares have remained relatively flat.

The market is recognizing that once the acquisition is complete, Rocket Lab will own Iridium's lucrative business, including the Aireon asset, which positions Rocket Lab to expand into satellite-based IoT, direct-to-cell communications, and position, navigation, and timing (PNT) markets.

For Rocket Lab, the acquisition of Iridium is a game-changer. Iridium is already a profitable company with strong cash flow, and its latest earnings beat suggests that it could outperform expectations in 2027 and beyond. Analysts currently project Iridium to earn over $210 million next year, up 35.5% year over year, and generate $379 million in free cash flow. That would be more than enough to offset Rocket Lab's expected $74 million loss and negative free cash flow of $83 million, potentially making the combined company profitable and cash-flow positive in 2027.

Moreover, Iridium's Q3 results show that it has already earned $138 million in the first three quarters of 2026, which is 89% of the full-year analyst estimate of $155 million. With growth accelerating, there's a good chance that 2027 results will also exceed forecasts, providing a further boost to Rocket Lab's financials.

However, valuation remains a concern. Rocket Lab's market cap is around $45 billion, and if the combined company generates $300 million in free cash flow next year, that would put the stock at a forward price-to-free cash flow ratio of 150x. That's a very rich valuation, meaning the stock is priced for perfection. Rocket Lab must not only meet but exceed expectations to justify its current price.

Investors should also consider the execution risk of integrating Iridium and realizing the synergies. While the strategic rationale is sound, mergers can be challenging, and any hiccups could derail the timeline for profitability.