The space race is on and Maxar Technologies (Maxar Technologies Stock Quote, Chart, News, Analysts, Financials NYSE:MAXR), a down-and-out stock not too long ago, should be your ticket to ride, according to portfolio manager John Zechner, who thinks Maxar is one of the best-positioned companies in the growing space data sector.
“We still own Maxar. We lightened a little on it earlier this year and then bought back into some of the recent weakness,” said Zechner, chairman of J. Zechner Associates, speaking on BNN Bloomberg on Monday.
“The stock has had basically a tenfold move over the prior two years. It looked like they were in some financial risk for a period of time but they sold off assets and they’re making a decent recovery,” he said.
Space infrastructure company Maxar Technologies is equipped with both a geospatial imaging satellite business as well as software and analytics and it provides space-based information solutions including platforms for Earth observation, defence information systems, airborne surveillance and transportation management systems. The company ran through a rough period a few years ago related to debt issues, the loss of a key imaging satellite and a writedown of assets, but it started turning things around more recently by selling off its Canadian space tech business, MDA, and concentrating efforts on its satellite imaging company, DigitalGlobe.
Maxar finished 2020 with revenue and EBITDA up slightly from 2019, with revenues in its Space Infrastructure segment rising to $721 million compared to $706 million a year earlier and Earth Intelligence staying flat year-over-year at $1,081 million. (All figures in US dollars.)
“We made solid progress during 2020 toward achieving our longer-term targets, including efforts to drive sustainable growth in both our Earth Intelligence and Space Infrastructure segments and to reduce our debt and leverage, as evidenced by solid 17 per cent year-over-year backlog growth and the closure of the MDA divestiture and subsequent repayment of debt,” said Dan Jablonsky, President and CEO, in a February 24, 2021, press release.
Zechner said the space data and analytics sector is showing no signs of slowing down, which bodes well for Maxar.
“Bottom line, with their DigitalGlobe acquisition back in 2018 they’ve married the technology in the space very well, using their ability to have a low-level orbital satellite structure and assimilate the data that they receive from that for a variety of demands from companies on Earth,” Zechner said.
“It’s a need for data, whether it’s for farming and agriculture, whether it’s through industrial or municipal planning, for defence or other government contracts, everyone wants space info,” he said. “You see it so much, this ability to bring down the pictures you can get off of satellites for a variety of purposes and Maxar is positioned probably better than anybody to assimilate and they have the software as well from DigitalGlobe to combine this data and put it into a decent format.”
Worth upwards of $66 back in 2017, Maxar plummeted all the way to $4 by March of 2019, with much of the market leaving MAXR for dead before things started turning around. Last year, Maxar returned a massive 142 per cent, while so far in 2021 the stock is more or less at even after some up-and-down volatility.
“I had a management meeting with these guys probably about a year ago and I started asking them, can drones start to replace them or some of the low-level orbital satellites and quite honestly without getting the full, long-winded explanation, you just can’t recreate the data that you get off the satellites and those distant photos and the information you’re pulling off of that and I think that’s going to continue to be key,” Zechner said.
“And that’s going to drive their growth for the next couple of years and the valuation is still relatively good. And you’re seeing money go into the sector, as well, with the space SPACs and things like that we’re seeing more of a flow there and this is a great area of growth beyond standard technology,” he said.
Maxar’s share price dropped in early May with the release of its first quarter 2021 financials, which saw revenue from the company’s Space Infrastructure segment drop by eight per cent year-over-year, which helped to bring down EBITDA to $67 million compared to $77 million a year earlier. Maxar was hit over the quarter with a $28-million charge related to one of its satellites.
Last week, Goldman Sachs launched coverage of Maxar with a “Buy” rating and $52 target, representing a 29 per cent upside.
“The company has issued 2023 targets that we believe may actually be a bit conservative, and following a pullback in the stock this year, it now trades at a lower 2023 EV/EBITDA and FCF multiple than any other [defense stock] (7X on both). We expect continued improvement in financials to drive a rerating, as overhang from a challenging past cedes to a promising future,” said Goldman Sachs analyst Noah Poponak.
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