Gogo (GOGO) Moves 14.9% Higher: Will This Strength Last?

Gogo (GOGO) shares jumped nearly 15% to $14.40 following the successful delivery of its first 5G air-to-ground connectivity, validating its 5G ATG system. The company anticipates quarterly earnings of $0.12 per share, a 20% year-over-year increase, with revenues expected to reach $220 million, up 115.6% from the prior year. However, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days, suggesting that the stock's upward momentum may not be sustained without positive earnings estimate revisions.

Analysis

Gogo (GOGO) shares experienced a significant 14.9% surge in the last trading session, closing at $14.40 on solid trading volume, markedly higher than its 2% gain over the past four weeks. This upward movement was principally driven by the successful first 5G air-to-ground (ATG) connectivity delivery using Gogo's 5G chip, which serves as a validation for its Gogo 5G ATG system. This system is poised to offer customers high-speed broadband for enhanced in-flight experiences like video conferencing and streaming, with over 300 aircraft already pre-provisioned for this connectivity. This achievement builds upon Gogo's existing 5G progress, including FAA approval for manufacturing, investment in 170 5G towers, a new '5G core' installation, and development of a new 5G aircraft antenna. Looking ahead, Gogo is projected to report quarterly earnings of $0.12 per share, a 20% year-over-year increase, and revenues of $220 million, representing a substantial 115.6% rise from the year-ago quarter. Despite these strong growth projections and a Zacks Rank #2 (Buy), the consensus EPS estimate for Gogo has remained unchanged over the last 30 days. Empirical research indicates that sustained stock price appreciation often requires positive trends in earnings estimate revisions, suggesting a need for caution regarding the durability of this recent rally. In comparison, industry peer United States Cellular (USM), with a Zacks Rank #3 (Hold), saw its stock rise 0.7% to $60.33 but has declined 2.4% over the past month, with its consensus EPS estimate for the upcoming report revised down by 3% over the past month to $0.33, though this still represents a 65% year-over-year increase.

Key Decisions for Investors

• Investors should recognize Gogo's recent 5G technological validation as a significant positive catalyst, further supported by strong forecasted revenue and earnings per share growth for the upcoming quarter.
• Close monitoring of Gogo's earnings estimate revisions is crucial, as the current lack of upward revisions in the consensus EPS estimate may temper sustained stock price appreciation despite the positive operational news and strong growth outlook.
• Given Gogo's Zacks Rank #2 (Buy) and the substantial recent share price increase, investors might consider the potential for further gains but should weigh the risk associated with stagnant EPS estimates pending the next earnings report.