Macdonald Dettwiler & Associates Ltd. (TSX:MDA) surged 8.42% in a single trading session following the release of promising Q2 2017 results. In previous pieces, I’ve mentioned that MDA is an undervalued stock flying under the radar of many Canadians. Could the recent rally be the start of a sustained turnaround? Or does MDA require more catalysts to hit higher levels?
The surveillance, intelligence, and communications solutions provider recently doubled down on space satellite imagery with its latest acquisition of DigitalGlobe for $3.1 billion and has been given the green light. The DigitalGlobe deal opens many doors for MDA as there are many potential applications of images of Earth taken from space. MDA has some high-profile clients, including the U.S. Department of Defense, which plans to use the satellite images to ensure no imminent threat goes undetected.
Solid Q2 results could result in a sustained rally to higher levels
For the second quarter, MDA saw $503.7 million in consolidated revenue, up slightly from $502.5 million year over year. Communications segment revenues were $332.4 million, slightly lower than $361.4 million during the same period last year. This slight decrease is attributed to the lower number of satellite contracts that were awarded during this period. Operating EBITDA was at $94.3 million, slightly less than $96.4 million year over year. Net earnings were at $25.8 million, slightly higher than $25.3 million during the same period last year.
MDA also declared a quarterly dividend of $0.37 per share which will be paid out in late September. The dividend yield is now at 2.15%, which may not seem like much, but I believe it’s a bonus for contrarian investors looking for a turnaround.
MDA is still ridiculously cheap
Shares of MDA are still down over 30%, so it’s not too late to pick up shares, even after such a massive one-day rally. I believe the DigitalGlobe deal opens the door for many potential clients across various industries. MDA has a very solid portfolio of technologies, and I don’t think shares will remain depressed for very long.
The stock currently trades at a 24.28 price-to-earnings multiple, a two price-to-book multiple, a 1.2 price-to-sales multiple, and a 15.9 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.
Although revenue growth has stalled over the past few years, there are many promising prospects on the horizon, including DigitalGlobe. If you’re looking for an underrated and undervalued gem, then MDA is a solid bet at current levels.
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