Why This Little-Known TSX Stock Just Surged 25%

This TSX stock surged 25% after receiving a $2.1 billion project and posting earnings that blew past estimates.

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Before we get started, let me say that growth stocks can be quite volatile. This is what led to an absolute collapse during the pandemic when investors were trigger happy with investing in growth stocks. Yet even so, there are growth stocks such as this TSX stock I’ll discuss that could be interesting.

MDA stock

Last week, little-known TSX stock MDA (TSX:MDA) surged by 25% after reporting its second-quarter earnings. Shares of MDA stock, only on the market since 2021, dropped back after its initial public offering.

That is, until August 11, when the TSX stock announced earnings that caused it to reach 52-week highs. MDA stock peaked at $11 after announcing strong top-line growth with revenues up 27% year over year to $196 million. It also saw its adjusted earnings before interest, taxes, depreciation and amortization jump by 16% to $40.4 million.

What’s more, the global space industry stock announced a healthy backlog of $1.1 billion in projects following the strong year. And yet, that wasn’t even the most exciting part.

$2.1 billion

The biggest news to hit the headlines was that MDA was awarded a $2.1 billion contract from Telesat Lightspeed. The company was chosen to design, manufacture, assemble, and test 198 satellites with options for Telesat to purchase up to 100 more satellites afterwards. These numbers are to be added to the company’s third-quarter backlog, so were not included in the second-quarter numbers.

The satellites will involve techniques including artificial intelligence, automation, cobots, and augmented reality, and be assembled at an accelerated rate to fulfill the contract. The news impressed investors, and management seemed thrilled.

“This award, MDA’s second selection as a prime satellite contractor in 18 months, reflects the ongoing growth in the LEO constellation market to meet increasing demand for space-based connectivity and communication services. Our selection is also a testament to MDA’s innovative technology and manufacturing capabilities in this market. We look forward to working with the Telesat team on this strategic program and to bringing enhanced digital connectivity in Canada and elsewhere.”

Mike Greenley, Chief Executive Officer of MDA

2023 outlook raised

The good news kept on coming, as MDA went on to announce that it would be raising its 2023 financial guidance. The TSX stock announced that after the strong first half of the year and recently announced Telesat program, it now expects revenue between $785 to $810 million. This would create year-over-year growth of 25% at mid-point guidance.

For the full year, EBITDA should reach between $155 and $165 million, a 20% adjusted EBITDA margin. Capital expenditures were also adjusted, with a goal of between $200 and $220 million from growth investments. For the third quarter, the company now expects revenue growth by 10% to 15% compared to 2022 levels as they make it through the backlog.

Bottom line

As mentioned before, this is certainly a growth stock that could be going places. But growth stocks usually rise up, then come back down to reasonable levels. I’m not saying MDA stock is about to drop by 25%. Far from it. But I am saying it’s likely to drop back a few percentage points before perhaps climbing once more.

Yet given this outstanding guidance and outlook, MDA stock is certainly one to watch. It looks to have a substantial backlog and already a strong track record in executing its projects. With that in mind, it’s at least a TSX stock to add to your watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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