The B.C.-based company formerly known as MacDonald, Dettwiler and Associates is worth a look, National Bank Financial analyst Richard Tse says.
In a research flash update to clients Wednesday, Tse maintained his “Outperform” rating and one-year price target of (U.S.) $60.00 on Maxar Technolgies (TSX, NYSE:MAXR), which closed Tuesday on the NYSE at 52.85, implying a return of 13.5 per cent at the time of publication.
“If you’ve been following our research, you’ll know our view on Maxar – we like the name,” Tse says. “We believe much of the bad news is priced into the stock despite continued softness across their industry; specifically, the GEO Comm market. It’s something we’ve underscored over the past few years among other structural challenges in the market. The other reality is that MDA’s acquisition of DigitalGlobe could not have come at a better time in the face of the structural changes causing that softness (overcapacity, emerging technology / space companies).”
But the analyst says another underperforming piece of Maxar’s business may be on the way out, a development that he thinks could spur a “potentially meaningful” expansion in overall margins and generate cash that could be deployed elsewhere.
“It was recently reported (in SpaceNews), referencing a competitor that Maxar could be considering strategic alternatives for its GEO Comm unit which could come in a number of forms – restructuring, divestment, joint venture, or other,” Tse notes. “This is not a big surprise as it was essentially implied at the Company’s Investor Days back in the Spring. That said, it does bring the notion of action closer. The reality is that we all know the GEO Comm segment of Maxar has been in decline for some time – it’s largely why we had an out of consensus recommendation on the stock for much of the past few years until our recent upgrade in May that pointed to a improved risk-to-reward even in the face of a soft market backdrop.”
Tse warns that speculation about the Geo Comm unit is just that, speculation, but says we should hear more about this when Maxar reports its Q3 results on July 31.
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