Macdonald Dettwiler needs more from Space Systems Loral, says Stifel Nicolaus

Stifel Nicolaus Canada analyst Blair Abernethy says business from Macdonald Dettwiler’s (Macdonald Dettwiler Stock Quote, Chart, News: TSX:MDA) massive recent acquiition of Space Systems/Loral (SSL) is rolling out more slowly than he expected.

Macdonald Dettwiler will report its second full quarter containing contributions from SSL on July 31st, when its Q2, 2013 is due to be released. The company follows on a Q1 in which it earned $2.2-million on revenue of $428.6-million.

Abernethy says he will be focusing on MacDonald Dettwiler’s outlook for its Communications segment. In order to maintain revenue of more than a billion dollars a year, he says Space Systems Loral needs to book more than seven satellite wins each year. He notes that on its Q1 conference call, the company said it needed several more wins in this area, and since that time SSL has booked only one additional win, for a total of two, year-to-date. The Stifel Nicolaus analyst says this slow pace will put real pressure on Macdonald Dettwiler’s fiscal 2013 revenues and, left unchecked, could begin to impact fiscal 2014 as well.

In a research update to clients this morning, Abernethy maintained his HOLD rating on Macdonald Dettwiler. He points out that the company is currently trading at 9.3x his estimate of its fiscal 2014 EBITDA, which is higher than the 6.9x its peers trade at, and 12.2x his estimate of fiscal 2014 EPS, which is in line with comparables. He believes the fair value range for the stock is $62-$65.

Abernethy’s forecast for both top and bottom-line for Macdonald Dettwiler’s Q2 are below consensus. He thinks revenue will come in at $421.6-million, versus the street’s expectation of $452-million, and that EPS will total $1.19, versus the consensus $1.22.

Shares of Macdonald Dettwiler closed today down .6% to $69.35.

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