Take a pass on Maxar Technologies, this portfolio manager says

These days, Maxar Technologies’ (Maxar Technologies Stock Quote, Chart TSX, NYSE:MAXR) satellites and space tech are doing a lot better than its share price, which has been knocked out of orbit and now sits down 76 per cent year-to-date.

But even at bargain basement prices the stock is still not a buy, says David Driscoll, President and CEO of Liberty International Investment Management, who says that the company has yet to prove that it can turn a profit.

“It has fallen on hard times,” says Driscoll, to BNN Bloomberg. “Their shares got up in the $80s a few years ago. The problem they’re finding right now is they’ve got deals on the table but there are no guarantees and the margins are really thin. With satellite communications, you’re not talking about a very high-margin business.”

“This is what happened in the past is that a lot of the old deals that they were tendered were at very low margins and therefore it wasn’t doing the company any good to say that we’ve got sales but you’re not making any money on the margins,” he says. “That’s the challenge that’s out there for the company right now and their executives.”

The former MacDonald, Dettwiler and Associates was the victim of a short-selling campaign earlier this year, which charged that the company had been consistently overstating its earnings, that it was facing a major debt challenge and that its organic revenues were in marked decline.

Some of those concerns seemed to be confirmed in the company’s third quarter report for 2018, delivered at the end of October and featuring a $433-million net loss. Maxar generated Adjusted EBITDA of $146 million and an operating cash flow of $119 million, with management saying that the company has dealing with its debt as a prime focus.

“We made progress this quarter in executing on our four strategic priorities that focus on driving sustained growth in our Imagery and Services segments, returning our Space Systems segment to growth, achieving merger synergies, and improving cash generation with a priority to pay down debt balances and reduce leverage,” said President and CEO Howard L. Lance in a press release on October 30.

Driscoll says that the stock remains in wait-and-see mode for the time being.

“Their earnings are expected to drop in 2019 and then jump in 2020. Their cash flow is still chugging along and they’re trading at a very cheap multiple of roughly 5x forward earnings and 2x cash flow,” Driscoll says.

“To me, it’d be more of a hold than a buy but it has fallen so much this year that if people want to do some tax loss selling, it’s a perfect candidate,” he says.