Is now a good time to be buying space tech company Maxar (Maxar Stock Quote, Chart, News TSX:MAXR)? Investor Benj Gallander says no, citing the company’s huge debt as a reason to be skeptical about its long-term prospects.
After a disastrous 2019, Maxar has been making headlines for better reasons more recently, with a number of new contract wins adding wind to its sails. The satellite company announced in late January a multi-year deal with the Netherlands’ defence agency for access to Maxar’s cloud-based geospatial intelligence platform, while more recently the company snagged a couple of US contracts, one with NASA to build a
robotic spacecraft and one with Intelsat to build a geostationary communications satellite.
The contracts come in a time of plenty for space companies, as the US federal government has increased the budget for NASA for 2020 by 12 per cent, aiming to push its lunar mission into high gear and giving companies like Lockheed Martin, Boeing and Maxar more business in the process.
Earlier this month, Maxar announced another NASA contract to deliver a robotic arm for the lunar mission dubbed Artemis which aims to get a manned craft back onto the moon by 2024.
The flurry of good news is a change from the deluge over the past year and a half which saw Maxar’s stock plummet in response to a short-seller attack on its accounting practices, a write-down of its satellite business and in January of last year the loss of one of its key revenue-generating satellites to malfunction.
Maxar’s share price went from a high of $86 in late 2017 to as low as $5 by March of last year. The stock has posted strong gains since, however, finishing 2019 up 25 per cent and having climbed a further 11 per cent in 2020.
But Maxar’s recent run of success shouldn’t lead investors to jump into the stock, said Gallander, president of Contra the Heard Investment Letter, since the company’s ability to sustain profitability is still under question.
“[The stock] is up about five times from its low so certainly it has come back a long way,” says Gallander, in conversation with BNN Bloomberg on Wednesday. “It went on our stock watch list when it got the crap beat out of it. I see how it could possibly double from here. I don’t think it’ll reach $97 where it was a few years ago.”
“But at the same time, I’m kind of amazed. The stock has a big debt load, much bigger than I’d like to see for a company that’s done very, very well. I like to see companies in those circumstances pay down their debt and this one hasn’t done it,” he said.
Maxar made a move to address its debt by selling off its Canadian assets, the former MacDonald, Dettwiler and Associates, which was sold to a Toronto-based private equity firm for $1 billion in December.
“The sale of MDA furthers execution on the company’s near-term priority of reducing debt and leverage,” said Dan Jablonsky, chief executive of Maxar, 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.”