Maxar Technologies Ltd. (TSX: MAXR)(NYSE: MAXR) shares are up ~26% since my initial buy recommendation just over six months ago. Shares were the cheapest they’ve been in years with a huge margin of safety for investors who chose to initiate a position. Even after the recent rally, the stock is undervalued and could be poised for more gains over the next few years, as management moves forward with its U.S. expansion plans.
The DigitalGlobe deal is closed and that opens a huge window of opportunity, not just for the U.S. Department of Defense, but for many other potential applications that the advanced satellite imaging system could offer to various organizations. DigitalGlobe could be a provider of data to help organizations like Facebook Inc. (NASDAQ:FB) accomplish its goals in a cost-effective manner.
Facebook’s goal is to connect the world, which is a daunting task, but with high-quality images taken using DigitalGlobe’s new satellites, Facebook can run the imaging data through an algorithm of its own, which will aid in the strategic placement of infrastructure to maximize signal strength for developing countries in the cheapest possible way.
That sounds incredibly useful, not just for Facebook’s ambitions, but for any provider of wireless infrastructure. This technology could help wireless communication infrastructure providers lay out their hardware across suburban areas to increase global connectivity without breaking the bank. With imaging data provided by DigitalGlobe, terrains can be mapped out, and population-density models can give clues to infrastructure providers on where and how to most efficiently place their towers.
With the amount of cost savings involved, it wouldn’t make sense for infrastructure providers to not do business with Maxar and its powerful new satellites. And it doesn’t stop at just connectivity; there are many applications that haven’t even been thought of yet. Going forward, it’s likely more clients will come rolling in, and that means earnings and free cash flow generation could take off.
Maxar making a name for itself in the hot U.S. market
There’s no doubt that a majority of the potential clientele will come from south of the border, and with high-profile clients like the U.S. government, Maxar is making itself very attractive to prospective firms that may wish to partner up in the future.
Shares are now listed on the NYSE, and the company has a “U.S. Access Plan,” which aims to give the Canadian company a U.S. makeover to open more doors for further U.S.-based space contracts.
Bottom line
Compared to the original MDA, Maxar is a more diversified space play with a strong portfolio of end-to-end solutions. With the U.S. Access Plan, Maxar becomes a must-buy as the company capitalizes on growth from the hot U.S. market.
Shares of Maxar are still dirt cheap today with a forward 13.2 price-to-earnings multiple, a 4.2 price-to-book multiple, a 1.5 price-to-sales multiple, and a 17.8 price-to-cash flow multiple, all of which are lower than the company’s five-year historical average multiples of 28.8, 4.5, 1.8, and 25.9, respectively.
Maxar is shooting for the stars, and I think Canadian investors should pick up shares before U.S. investors gradually begin to take notice.
Stay hungry. Stay Foolish.
