These are tough times for shareholders of Maxar Technologies (Maxar Technologies Stock Quote, Chart TSX:MAXR), which after a trying year in 2018 and a just as trying start to 2019 the company ended off February by taking an axe to its dividend, while announcing lower than expected quarterly revenues. All of which is to say that it could be time to cut your losses, says Don Lato of Padlock Investment Management, who says that the company’s debt ratio is just too unwieldy.
“They’re trying their best to make sure there’s some hope left. They’re trying to cut costs in a number of divisions but also to sell some of their holdings, to streamline the business to what they started out as and what they do best,” Lato, president of Padlock Investment, told BNN Bloomberg viewers Wednesday.
“If you hold it and you’re thinking about taking a loss, now is probably as good a time as any,” he says. “Certainly, if you do decide to hold it and it’s still trading at the same levels at the end of the year, I would definitely be looking at [selling] at that point. There’s just too much confusion, it’s too much of a disappointment and just too much debt.”
Maxar shares dropped 19 per cent at the end of February as the market responded to the company’s fourth quarter financials, which included an announcement of an organizational restructuring “to create a leaner and more agile business.” The company also cut its dividend from 37 cents per share in the previous quarter down to one penny. (All figures in US dollars.)
Maxar reported Q4 revenue of $496 million which was below the consensus expectation of $560.3 million and a net loss of $950 million or $16.10 per share, which compared to a profit of $55 million or 99 cents per share a year prior. The company’s long-term debt load grew to $3.03 billion for the period ended December 31, 2018, versus $3.94 billion a year earlier.
“The leverage ratio is about 4.2x and unless they can turn around some of those businesses they’re going to have further losses which is going to eat into that leverage ratio,” says Lato. “They’re okay on the covenants, they’re a little bit higher so there’s not immanent bankruptcy here, but it’s a long recovery road ahead.”
“I’d still be avoiding the stock. I came very close to buying it last summer and just didn’t pull the trigger, fortunately,” he says.