Macdonald Dettwiler & Associates Ltd. (TSX: MDA) is a Richmond, B.C.-based company that provides surveillance, intelligence, and communications solutions to businesses and high-profile government organizations such as NASA. You may be familiar with the Canadarm, which was produced by MDA. It’s the remote manipulation arm on board the space shuttle as well as the International Space Station, which proudly displays the Canadian flag.
The company recently beefed up its space imagery portfolio with the acquisition of DigitalGlobe in a deal worth $3.1 billion, which is expected to become accretive to MDA’s top line next year. This acquisition makes MDA a dominant player in the satellite imagery space, which has the potential to offer a ton of value to prospective clients.
Satellite Imagery a huge opportunity with many applications
DigitalGlobe is capable of creating high-quality images of Earth from space. These images provide data that provide a lot of value to clients such as the U.S. Department of Defense, who can take a glimpse of what’s happening over North Korea. It’s not a mystery that Kim Jong-un has been ramping up his missile tests of late. With high-resolution images from DigitalGlobe’s satellite, the U.S. government will be able to get a bird’s eye view of any missile setups in North Korea’s military zones.
It’s not just military applications that satellite imagery is good for. DigitalGlobe can provide data that will help corporate projects run more efficiently. For example, Facebook Inc. (NASDAQ:FB) is analyzing billions of DigitalGlobe images to create accurate population-density models.
Using complex computer vision algorithms, Facebook is able to visually determine how to deploy terrestrial networks, satellites, and drones to most efficiently provide affordable internet to developing countries. With the help of DigitalGlobe’s satellite imaging technology, companies such as Facebook are able to connect the world in a cost-effective manner.
The applications are endless, and MDA’s satellite imagery segment is one of the best in the world. I believe MDA is a fantastic high-tech play that has been flying under the radar of most Canadian investors. MDA intends to have its stock traded on the New York Stock Exchange sometime after the DigitalGlobe acquisition is closed, and I think this move could spike public interest in the stock.
What about value?
MDA has been pulling back for quite some time now, and shares are down 33% from its high. The stock currently trades at a 17.8 price-to-earnings multiple, a 2.1 price-to-book multiple, a 1.2 price-to-sales multiple, and a 14.1 price-to-cash flow multiple, all of which are substantially lower than the company’s five-year historical average multiples of 28.8, 4.5, 1.8, and 25.9, respectively.
The stock is the cheapest it has been in many years, and I think deep-value investors would do very well by initiating a position today. The stock is experiencing a considerable amount of downward momentum, so I’d buy a small portion of shares today with the intention of buying more on any weaknesses that may happen going forward.
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