Macdonald Dettwiler’s (TSX:MDA) massive acquisition of Space Systems Loral should soon start to make a real impact on its bottom line, says Industrial Alliance analyst Al Nagaraj.
On Friday, May 3rd, MacDonald Dettwiler will report its Q1, 2013 results. The consensus estimate has MDA posting revenue of $459-million, Nagaraj thinks they will come in at $408-million, which would be up 137% from $172-million topline the company posted in last year’s Q1. Nagaraj’s estimate for this quarter may fall below the street’s but he is more than positive about MDA going forward.
The Industrial Alliance analyst says the Loral acquisition is transformational, and will provide Macdonald Dettwiler with earnings growth for years to come. He says the company is already bidding on a significant number of contracts that will add to the $2.2-billion backlog it had at the end of 2012. He notes that Macdonald Dettwiler has been awarded a $706-million contract with the Canadian Space Agency in the time since, and has established a proxy agreement for its U.S. geospatial services operations that should get it access to higher level U.S. government contracts.
Nagaraj says he expects MDA margins will fall, initially, because of the Loral integration. He thinks this decrease could drop margins to 14%, from 26%. But he expects the company will win a significant amount of high margin projects in the U.S. in 2014, and major satellite contracts through its Loral division globally in the next eighteen months. In a research update to clients this morning Nagaraj maintained his BUY rating on Macdonald Dettwiler but raised his target price target to $87, up from his previous target of $75.
Nagaraj says the reason for the target raise is that he is now basing them on his projections for 2014, His $87 target price is based on 12.9x his adjusted earnings EPS estimate of $6.78.