3 Takeaways From MDA’s First-Quarter Results

Does a strong pipeline make this Canadian technology company a buy?

The Motley Fool

MacDonald, Dettwiler and Associates, better known as MDA (TSX: MDA) released first-quarter results last week, and the market liked what it heard. During the first full day of trading, MDA stock gained nearly 4%. So far this year, it’s up 8.7%, slightly outpacing the S&P/TSX Composite Index (TSX:^OSPTX).

Delivering communication satellites for direct-to-home television, satellite radio, broadband internet, and mobile communications accounts for 70% MDA’s annual revenues. Space-based and airborne surveillance and information systems contributes the remaining 30% of revenues.

Compared to the same period a year earlier, consolidated revenues increased 15% to $492 million, and adjusted operating earnings increased 18% to $49.4 million. Adjusted operating earnings per share of $1.37 represents an increase of 5% from the first quarter of 2013, and was broadly in line with analysts’ expectations of $1.38 per share.

Apart from the headline figures, here are three important takeaways from MDA’s latest earnings release, and what it means for investors.

Strong deal pipeline

The order backlog, which represents the estimated value of contracts for which work has not been performed, was $2.8 billion at the end of the first quarter, down by approximately $200 million from the end of the year. However, several large communication contracts, estimated by TD Securities to be in excess of $400 million, were signed after the end of the first quarter.

During the conference call with analysts and investors, MDA confirmed the strength of its pipeline, and noted that there is over $2 billion worth of outstanding bids still to be awarded.

Valuable data

Revenues from geospatial information services, part of the surveillance and intelligence business unit, increased to $148.8 million in 2013, an increase of over 10% from the previous year. By linking a wide range of data and analyses with geographical images, geospatial information services helps customers makes decision on a wide range of issues, including environmental and engineering projects, transportation, land use, military and commercial endeavours.

Though still a relatively small percentage of overall revenue at approximately 7%, this high margin business could grow quickly over the next few years.

Shopping for acquisitions

With the creation of a new role dedicated to the pursuit of mergers and acquisitions, MDA has signaled its intention to actively pursue growth opportunities.

Acquiring one, or several firms that would expand MDA into new geographies, capabilities or accelerate its growth in the area of geospatial information systems are all possible. A likely priority is a target firm that would provide ongoing services revenue to offset the significant revenue and expense spikes associated with MDA’s current lines of business.

Is the stock too pricey?

With the acquisition of Space Systems/Loral in 2012, MDA successfully diversified its business, and dramatically increased growth expectations. Today, however, its stock looks expensive. MDA’s trailing and forward price to earnings ratios of 28.5 and 14.1 respectively, are higher than their five-year averages. MDA continues to be a Canadian technology success story, however, with high expectations and a valuation to match, there is not much for investor to get excited about.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Justin K Lacey has no positions in any of the stocks mentioned in this article.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »