Stay clear of Maxar Technologies, this investor says

The stock tanked in 2018 but made a bit of a rally over the back end of 2019, and with a new deal to shed its space tech business is the satellite company ready to take flight again?

Not likely, says portfolio manager Jason Mann, who argues that savvy investors who last year made some coin on the name should take their winnings and go home because there’s too much wrong with Maxar’s fundamentals to merit much more upside.

Formed through the merger of satellite imaging company DigitalGlobe and the Canadian space company MacDonald, Dettwiler and Associates, Maxar was barely out of the gate when accusations from a short-seller about the company’s accounting practices derailed the stock in 2018. The company followed up with a write-down of its satellite business and, last January, revealed a fatal error in one of its key revenue-generating satellites.

The combined effort reduced Maxar from a stock in the mid-$80 range to below $10 and brought about concerns of a potential bankruptcy.

But the market wasn’t done with this story yet, as shown by the stock’s gains over November and December, where MAXR gained 82 per cent and, so far this year, has tacked on another 30 per cent. Investors reacted positively to the company’s latest quarterly report in early November — one in which the company badly missed analysts’ top and bottom line estimates, however — and the market also seems to have liked Maxar’s recently announced deal to sell its MDA segment to Toronto-based investment firm Northern Private Capital, a move which would leave Maxar with its DigitalGlobe assets.

Offloading its Canadian assets and IP, one funded in part by former BlackBerry co-CEO Jim Balsillie, is part of an overall plan to unburden Maxar of some of its debt, according to management.

“The sale of MDA furthers execution on the company’s near-term priority of reducing debt and leverage,” said Dan Jablonsky, Maxar CEO, in a press release. “It also provides increased flexibility, range, and focus to take advantage of substantial growth opportunities across Earth Intelligence and Space Infrastructure categories.”

But while helping its balance sheet, the move doesn’t make Maxar’s path forward much clearer, said Mann, chief investment officer at EdgeHill Partners, who spoke to BNN Bloomberg on Friday.

“This was a stock that’s had a terrible go of it over the last couple of years [but] the problem has been and still is debt,” says Mann. “Even though they’ve sold some divisions and they’re trying to right-size this business, for us, the challenge is that as they do that it’s hard to evaluate what their cash flows look like. If you just look at the last 12 months it scores really poorly on a valuation, on a volatility and on a price momentum basis.”

“So it’s not something we’d own, but no question, the rally in Q4 really pushed this stock quite a bit higher,” he said. “I think that it has probably outrun itself for now until we actually start seeing some earnings that back that up but right now it would be Neutral for us, at best.”

Last week, Credit Suisse changed its rating on Maxar from “Underperform” to “Neutral,” saying that the sale of its MDA segment would “significantly de-risk” the company by reducing the likelihood of a liquidity crunch.