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Is Macdonald Dettwiler & Associates Ltd. Still a Buy After Friday’s 8.4% Rally?

Macdonald Dettwiler & Associates Ltd. (TSX:MDA), a global communications, surveillance, and intelligence company, announced its second-quarter earnings results after the market closed on Thursday, and its stock responded by soaring 8.4% on Friday. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should consider buying into this rally or wait for it to subside.

The results that ignited the rally

Here’s a quick breakdown of 10 of the most notable statistics from MDA’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q2 2017 Q2 2016 Change
Communications revenues $332.4 million $361.4 million (8%)
Surveillance & Intelligence revenues $171.3 million $141.2 million 21.3%
Total revenues $503.7 million $502.5 million 0.2%
Operating EBITDA $94.3 million $96.4 million (2.2%)
Operating earnings $47 million $57.2 million (17.8%)
Operating earnings per share (EPS) $1.29 $1.57 (17.8%)
Net earnings $25.8 million $25.3 million 2%
Net EPS diluted $0.70 $0.69 1.4%
Order backlog $2.0 billion $2.0 billion unchanged
Cash provided by operating activities $34 million $79.98 million (57.4%)

What should you do now?

The second quarter was decent at best for MDA, but the results beat the consensus estimates of analysts polled by Thomson Reuters, which called for operating EPS of $1.25 on revenue of $476.69 million. The company’s stock had been down about 5% year to date before the earnings release, so I think the rally was ignited by the fact that it beat analysts’ expectations. That being said, I think the stock represents an attractive long-term investment opportunity for three reasons.

First, it trades at very attractive valuations. Even after the 8.4% rally, MDA’s stock trades at just 13 times fiscal 2017’s estimated operating EPS of $5.30 and a mere 11.7 times fiscal 2018’s estimated operating EPS of $5.89, both of which I think are very inexpensive given it’s long-term growth potential.

Second, its acquisition of DigitalGlobe Inc. will fuel future growth. In February, MDA announced its acquisition of DigitalGlobe, one of the world’s leading providers of high-resolution Earth-imagery products and services. This transaction is expected to close before the end of the third quarter and be accretive to its operating EPS beginning in 2018.

Third, it has a good dividend. MDA pays a quarterly dividend of $0.37 per share, equal to $1.48 per share annually, which gives it a solid 2.15% yield. It’s also worth noting that the company raised its dividend by 13.8% back in fiscal 2015, and I think it could announce another slight increase following the completion of its acquisition of DigitalGlobe.

With all of the information provided above in mind, I think Foolish investors should consider beginning to scale in to long-term positions in MDA over the next couple of trading sessions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned. Macdonald Dettwiler & Associates is a recommendation of Stock Advisor Canada.

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