Shares in Maxar Technologies Ltd. (TSX:MAXR)(NYSE:MAXR) soared an impressive 20% last month. The rise in October comes as the fifth consecutive month of gains in the company’s share price and is a good indication that the tide is starting to turn for the satellite communications company following a two-year stretch that saw shares decline from $95 to $62.
On October 5, the company announced that it had completed its acquisition of DigitalGlobe and had formally changed its name to Maxar Technologies from its previous moniker, MacDonald, Dettwiler and Associates Ltd, and with the move, had become dual-listed on the NYSE in addition to shares that already traded on the TSX.
The closing of the DigitalGlobe deal marks a landmark moment in the company’s 48-year history as it strategically pivots away from a declining communications satellite business and towards the market for U.S. defence contracts.
There are many hoops the company will have to jump through between now and the time it can officially start bidding on U.S. federal contracts but listing on the American exchanges is a key requirement.
Not only does the company’s dual-listing take it one step further towards its objective of a pivot towards the U.S., but it also carries the benefit of exposing Maxar to U.S. markets, which should have the effect of lowering the company’s cost of capital.
The U.S. stock market is by far the largest and most sophisticated of any exchanges in the world, and by opening its doors to the U.S. market, the company has dramatically increased its capital base with the move.
Over time, more American and international investors will become aware of the company and its initiatives in the U.S., which should have the effect of bidding the shares up.
In announcing the move, Howard L. Lance, CEO and president of Maxar, took the opportunity to espouse the benefits of the DigitalGlobe acquisition, including improved scale of operations and a more diversified revenue base for the company to draw on.
Moreover, DigitalGlobe holds existing relationships with federal departments in the U.S., which should bode well for Maxar when the time comes for start actively competing for U.S. contracts.
But before that happens, the company will need to continue making progress in the other components of its “U.S. Access Plan,” which includes transferring headquarters to San Francisco and meeting other security clearances, which are expected to take until the end of 2019 to complete.
While 2019 may seem far away, it may pay to invest in Maxar shares today, as the potential implications of its U.S. Access Plan could have transformative impacts for the company.
The U.S. defence market is as big as any market for Maxar and its portfolio of satellite imagery and geospatial solutions.
If the company can successfully execute its plan, the latest move could mark a new era of growth for the company in a world that is moving to increasingly sophisticated surveillance systems for defence and immigration purposes.
Moreover, Maxar has a favourable debt-to-equity ratio, which means the company will be less affected by rising interest rates as central bankers embark on more hawkish monetary policies.
Bottom line
Gains of 20% in a single month are hard to come by, even for a company with as many initiatives underway as Maxar currently has.
While the potential of Maxar is appealing, investors may want to exercise patience and try to snap up the shares on a minor pullback.
