Look up into the sky any evening, and you will see satellites traversing the nightscape. Maxar Technologies (MAXR) designed and built a lot of the ones you see, asserts Michael Brush, an industry leading growth stock expert and editor of Brush Up On Stocks.
It also makes other space infrastructure products like robotics and subsystems. Maxar’s products are used by governments, defense departments, the private sector, spy agencies, and space exploration entities like NASA.
In addition, Maxar has its own network of four satellites to collect and sell high-resolution Earth imagery and geospatial data. Governments, spy agencies and private companies around the world rely on its space images for spying, defense, environmental monitoring, disaster management, crop management, oil and gas exploration and infrastructure management.
The key to understanding this story is to know that Maxar has a long history in the space industry, dating back to the Apollo missions. It has been designing and manufacturing satellites, space exploration spacecraft and space robotics for decades.
The company has built and launched more than 285 spacecrafts with 2,750 years of service. It developed all five robotic arms on the Mars landers and rovers.
Maxar currently has 90 geosynchronous equatorial orbit (GEO) satellites, and 26 low earth orbit (LEO) satellites in service. It launched the world’s first high-resolution commercial imaging satellite in 1999. It currently has four imaging satellites, called GeoEye-1, WorldView-1, WorldView-2 and WorldView-3.
In short, Maxar has a long track record of success in this space.
But recently, the company has been beset by a number of issues that have driven its stock down to $30 from $58.
The key for us here is that insiders are challenging the sell off with stock purchases. This makes sense, because boiled down, all the issues seem like one off, fixable problems.
These kinds of problems freak out investors in the short term. But they are not long term problems. So related stock sell offs in these situations look buyable, especially when insiders are buying. This is a classic Brush Up on Stocks set up that works well for us time and again (but not always).
What are the one-off issues?
* An SXM-7 satellite launched for Sirius XM last December failed ($28 million charge), with no explanation.
* Supplier Raytheon reported problems with high-precision optical instruments in April that need to be fixed.
* There are problems with Honeywell electronic components that have to be fixed.
* The company just took a $41 million write down related to a debt paydown. It opportunistically issued 10 million shares to raise cash at $40 to pay down debt to $2.1 billion from $2.4 billion, so there is a positive in this.
* The company guided for a small decline in sales next quarter (but higher cash flow).
Finally, the company just got ARK-ed. Its stock went into hyperspace when Ark Invest announced plans for a satellite ETF. The ARK effect has come and gone.
Now for the good news. Because of Maxar’s long standing track record in the industry, all of these problems can be fixed and put in the rear-view mirror without too much reputational damage.
Excluding one off problems, the company generated 12% revenue and 40% adjusted EBITDA growth in the first quarter. It forecasts over $25 billion in pipeline opportunities over the next five years, which is pretty impressive compared to the $1.9 billion of bookings in 2020.
Tactics: The CEO and CFO recently bought around $200,000 worth of stock. That’s small, but it is big enough, and the buying record here is good. I suggest considering purchases now with a plan to add on declines to where the CEO and CFO bought, or $28 a share.