This space technology company has had its ups and downs but recent moves to deleverage are stoking investors’ interest.
Maxar Technologies Inc. (MAXR)
From The Wealth Advisory
Maxar Technologies Inc. (MAXR) went through a span of really large acquisitions over the past few years. And it built up a huge amount of debt doing it. That was all well and good with the market at the time, however, because the company was launching a new satellite, and that would bring in new cash flows to pay off the debt. But then disaster struck, and the WorldView-4 satellite failed. And Maxar’s share price plummeted from nearly $70 per share all the way down to less than $5.
Without the WorldView launch, Maxar wouldn’t have the cash flows it would need to make the payments on its loans. The market was predicting a complete collapse of the business and perhaps even a bankruptcy as Maxar defaulted on its debt.
But since that massive crash in share price, Maxar’s management has been working tirelessly to investigate every possible way to deleverage the company and get its debt load to a more manageable level. Last week, we got an update from Maxar to let us know exactly how successful the company has been with that top priority.
Management reported quarterly numbers last week. And while revenues slipped slightly year over year and EPS was just a little above analysts’ expectations, it was something else entirely that drove share price.
You see, the company is already making major strides toward its goal of deleveraging.
Over the course of the quarter, Maxar completed negotiations to sell some real estate in Palo Alto that it acquired through one of its recent purchases. That sale will bring in $291 million. And every last penny (other than what’s used to cover closing costs) is going to go toward paying off debt. It’ll be enough to pay down all the debt that comes due next year.
That gives the company a lot more breathing room to get cash flows growing and get its new line of satellites ready to sell.
But that’s not all the company is doing to get its balance sheet under control. Management also announced a private offering of secured notes. These notes could bring in $1.25 billion in fresh capital. And they will be used to pay off any debt left on Term Loan A2 and then directed toward the revolving credit facility. These secured notes are a form of debt also, but they don’t mature until 2023. That lines up future cash flows from Maxar’s new line of satellites with final payments on loans coming due.
And that gave the market the evidence it was looking for to send shares screaming higher. Default is highly unlikely. Bankruptcy no longer seems to be hanging over the balance sheet.
Maxar is ready to take off again. Even after jumping nearly 40% so far this month, Maxar’s shares are still over 80% off their all-time high from 2017. And what’s more is that they’re still over 80% lower than the average analyst price target of $60. Heck, they’re even 75% below the lowest analyst target.
That means the most bearish and negative analyst covering this stock still sees 75% upside from where it is today. And when you take a look at the contracts and relationships Maxar has around the globe, it’s not hard to see why this company should be worth so much more than the $11–$12 it’s trading for today:
Now, don’t get me wrong; I don’t see completely smooth sailing for the rest of our investment. Maxar is a bouncy ride. But its trend is up. So, while it may continue to jump and drop, I see the new highs steadily getting higher and the new lows following suit.
That being said, I’m raising our limit entry price so everyone can get a piece of the action. Maxar is now a buy anywhere under $12.50. I’m not raising it too much so that we avoid chasing any short-term rallies that aren’t sustainable. Like I said, it’s a bouncy stock, and we’re likely to see some dips ahead.
But there’s the distinct possibility that we never see Maxar shares trading below $10 ever again.
Brit Ryle and Jason Williams, The Wealth Advisory, www.angelpub.com, 877-303-4529, November 11, 2019