Shares of Globalstar Telecommunications Ltd. (GSTRF) rose more than six percent from 24 8/16 to 26 in midday trading Friday after Merrill Lynch issued a very positive report on the company's prospects.
After testing Globalstar's satellite phones at an analyst conference held this week, Merrill Lynch raised its long term rating on the company's stock to "buy" from "accumulate" and predicted the company's stock price would rise to $42 a share within 18 months
The voice quality was "very high" and "noticeably higher than Iridium's," analyst Thomas W. Watts wrote in a report issued Friday, referring to Iridium LLC, the first and as-of-yet only global satellite phone company to debut its service.
Investors have remained skeptical about the "global-mobile" satellite phone industry since Iridium LLC declared bankruptcy on August 13. Another competitor, ICO Global Communications, declared bankruptcy on August 27.
Demand for Iridium's satellite phone service has been significantly lower than the company predicted it would be before its launch in 1998. But industry analsysts blame high prices and bulky phones, rather than overall lack of demand for satellite phone services. In fact, price cuts have reportedly boosted the number of subscribers in North America by 25 percent per month since July.
Merrill Lynch predicts Globalstar will have 6,000 subscribers by the end of 1999, and about 400,000 subscribers by the end of 2000. The brokerage expects Globalstar stock to more than double in the next 12 to 18 months.
"We remain confident in the long run demand for Globalstar's services and believe it will be able to ... sidestep the pitfalls encountered by Iridium and launch its service successfully," the report said. "Globalstar also appears fully prepared for its commercial roll-out beginning in October."
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