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Macdonald Dettwiler & Associates Ltd.: Time to Buy the Dip?

Macdonald Dettwiler & Associates Ltd. (TSX:MDA) is a global communications and information company headquartered in Richmond, B.C. The company provides surveillance, intelligence, and communications solutions to commercial and government organizations.

You probably haven’t heard of the company, but you might know of one of the Canadarm — a remote manipulator system used on NASA’s space shuttle. MDA has also produced the Canadarm2 and the Dextre, which is a remote manipulation system on board the International Space Station.

The company recently announced this February that it is acquiring satellite imagery company DigitalGlobe for approximately $3.1 billion. The deal will assume DigitalGlobe’s $1.6 billion worth of debt and is to be accretive to MDA’s operating earnings per share next year.

DigitalGlobe is capable of creating high-resolution images for high-profile clients such as the U.S. Department of Defense and Facebook Inc. The company is one of the United States’s largest providers of Earth photography from space. The high-quality images that DigitalGlobe produces have a ton of applications, including getting a glimpse of North Korea and its military zones.

There’s no question everyone is getting spooked out about the growing threat of North Korea. They’re testing missiles quite frequently, and the threat of a nuclear disaster is the highest it’s been in a long time. Using the high-resolution imaging technology, organizations like the U.S. Department of Defense will be able to get a bird’s eye view of North Korea to see what Kim Jong-un is up to.

There are way more applications of these high-resolution images, and going forward, I believe this acquisition further strengthens MDA’s portfolio of impressive communications technologies. The management team at MDA made it clear that they intend to have their stock traded on the New York Stock Exchange after the DigitalGlobe acquisition is closed. I believe this move will put MDA on the map, especially since the U.S. government is such a large customer. American investors will soon be able to scoop up shares of this underrated Canadian gem.

What about value?

The stock of MDA has been in a house of pain for the last two years. Shares have now pulled back 30% from its 2015 high, and I think the stock is a terrific value play for investors looking to ride a rebound.

The stock currently trades at an 18.5 price-to-earnings multiple, a 2.2 price-to-book multiple, and a 1.2 price-to-sales multiple, all of which are lower than the company’s five-year historical average multiples of 28.8, 4.5, and 1.8, respectively. I think MDA is too cheap to ignore, and there exists a considerable margin of safety with an investment at current levels.

If you’re a long-term value investor, then buy shares and collect the 2.1% dividend yield while you wait for the stock to launch back into orbit.

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Fool contributor Joey Frenette has no position in any stocks mentioned. David Gardner owns shares of Facebook. Tom Gardner owns shares of Facebook. The Motley Fool owns shares of Facebook. Macdonald Dettwiler is a recommendation of Stock Advisor Canada.

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