Maxar Technologies (MAXR) is a $3.7bn EV remote sensing business, one of very few stocks offering investors pure-play exposure to the high growth space sector. The bulk of the company's value is a result of its dominance of security-cleared Earth imaging services provided to federal government agencies. In addition the company has civilian clients for such imaging, and builds communication satellites on a to-order basis - most recently for Intelsat. MAXR stock suffered a brutal fall from grace through 2018, a result of leveraged overexpansion by the prior management team, compounded by a rare on-orbit failure of a Lockheed Martin-built imaging satellite. A new CEO and team took the reins in 2019 and has put in an exceptionally strong performance in restructuring the company. Their work is not yet complete but the worst risks are behind them and the future is bright. The stock has yet to recover to anything like its former high. And therein lies the opportunity.
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MAXR is well on the way to becoming a mainstream stock with broad-based ownership and a normal capital structure. The management team that took the reins in January 2019 has delivered an exceptional performance so far, including:
- Securing insurance proceeds to shore up the cashflow damage from the on-orbit failure of a prior generation Lockheed Martin-built satellite;
- Refinancing near-term maturing loan obligations, and entering into a material real estate sale & leaseback transaction to protect the balance sheet;
- Selling a legacy, low gross margin hardware business for c.$750m cash and, in particular, completing that sale in the teeth of the Covid crisis.
- Exercising a call option to acquire the part of the Vricon JV in Sweden that MAXR did not already own - thus rebalancing revenue and earnings further toward remote sensing at the expense of hardware (a valuation multiple-friendly thing to do).
We've covered MAXR since the time before its troubles, through the dark days of poison pill protection, and since then on the way back up too. We've been highly critical of the company in the past; the about-turn for us came when, in the teeth of the Covid crisis, the company succeeded in insisting on a completion of c.$750m divisional sale - this was no matter of luck but rather of skillful, detailed M&A work. The balance sheet was rendered safe overnight, the market failed to notice, we went to Buy in our entry-level 'Fundamentals' subscription service and our staff bought into the stock on a personal account basis too. That was at $10-and-change in Q1. The stock is presently in the mid-$20s having touched $30 recently.
We're very optimistic about MAXR's prospects. We think the company has plenty of growth in it as an independent, and we think that before too long a number of defense majors will come calling to buy it. We believe it would be a great fit for Northrop Grumman (NOC), Lockheed Martin (LMT) or indeed L3Harris (LHX) - all stocks we know well through our coverage and periodic ownership.
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(Disclosure: at the time of publication, Cestrian Capital Research staff hold personal account long positions in MAXR).
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Cestrian Capital Research, Inc - 25 September 2020.