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Buy Maxar For The Cashflow


  • Maxar Technologies, the once-embattled space sector pureplay, reported its Q4 earnings this week.
  • Few investors appeared to notice, but Maxar generated positive unlevered pre-tax free cashflow for the year.
  • Many investors are likely hesitant to commit to Maxar, since the market's worries about the company's ability to service its debt are only now beginning to abate.
  • We believe perception lags reality and, further, that the stock is en route to all time highs. We rate the name a Buy - Long-Term Hold.
  • This idea was discussed in more depth with members of my private investing community, The Fundamentals. Get started today »

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No Longer An Oxymoron

The words "Maxar" and "cashflow" have not, in recent times, sat well together in a sentence, unless elsewhere in the sentence you could also find the words "not enough" and "relative to the debt level". We've covered NYSE:MAXR for a long time and right from the off, back in 2017 before the company redomiciled to the US, we flagged the sizeable debt load built up by the prior management team in pursuing a series of space-sector acquisitions. As has been much written on these pages and elsewhere, the problems came home to roost when a single-point-of-failure event took place, that being the late 2018 on-orbit failure of a third party imaging satellite operated by MAXR. The subsequent damage to earnings and

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This article was written by

Cestrian Capital Research, Inc. is an independent, SEC-regulated investment research business led by CEO Alex King. Alex is a professional investor with 3 decades of experience. Cestrian specializes in covering growth stocks, index ETFs and index options, long-run investing, swing trading and risk management via hedging.

Alex runs the investing group Learn more.

Analyst’s Disclosure: I am/we are long MAXR.

Business relationship disclosure: See disclaimer text at the top of this article.

Cestrian Capital Research, Inc staff personal accounts hold long position(s) in MAXR.

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Comments (67)

"Buy MAXAR for the cash flow." Today might be the day.
RickJensen profile picture
@Chris Deahl
Cestrian Capital Research profile picture
@RickJensen @Chris Deahl We sold some before earnings and bought a couple of times today. Nonsubscriber note out probably tomorrow.
RickJensen profile picture
@Cestrian Capital Research
I'm still in, but if I had more than a nickel, I'd buy a partial share.
Great commentary from all involved. Thank you all, Cestrian for a fantastic article and clear comments, as well as Jim/Rick/SkiMan, et al.
Cestrian Capital Research profile picture
@dgiinvestor Welcome! Now for the MAXR / ARKX intrigue to begin.
Bossco profile picture
Appreciate the article.
But why no love for NPA? Heck it only has a 1946 PE (TTM)! ;-P
Jim H. profile picture
Have they run out of money to finish Legion? Has anyone asked whether the latest launch delay is due to poor performance in testing (technical) or failure to fund the overruns (financial).  

Legion’s most critical component is not being built in-house as the author pretends. The camera and all its components is a first ever design MAXAR bought from another company. Since the company depends on that camera working in space it seems like a fairly important point you would have researched.

If they are confident that in 6 months the Legion satellites will finally launch and produce the imagery they promise, why issue the new stock now? More a financial question but what am I missing?
Zorgo profile picture
@Jim H. the PR says they are paying down the debt with this issuance. I do find it odd as well, but at least that is what they say.
Cestrian Capital Research profile picture
@Zorgo @JIM H. Who knows what reality is but the raise in and of itself can be explained as a function of the move up in the stock price. The 9.6% note raised in the teeth of their balance sheet crisis is almost usurious in the context of current rates and so it's 'correct' for them to raise money. We will have to see how much of that note they redeem - that will give a clue as to how much of cash will be used for operations.
SkiManJamie profile picture
@Jim H. They have lots of room on their revolver. When they pushed out the launch, they not only discussed the reasons but if you haven't noticed the pandemic crunched the supply chain and various projects, not just at Maxar, were delayed.  

You are aware that if they retire just under 400m of debt (they'd have to pay a premium of face value), they'd cumulative save almost 100m of interest expensive over the almost 3 remaining years? Plus there's the benefit of improving the capital structure and accelerating the debt repayment by over a year. I'm happy with this, it's a great tradeoff and much better than them doing it when the stock was below $20 (or way below $20).

It's been a while since you've piped up with your singular and unique criticism of Maxar, why don't you tell us what axe you have to grind?
It's been quiet in here. Did anyone pull the trigger at $40 or thereabouts? I didn't as I have limited powder and MAXR remains my biggest position.
grebb profile picture
@Cassidy Run ditto - my current position is already outsized, thanks to MAXR’s growth. I just held on for dear life!
Teats29 profile picture
@Cassidy Run I did, sold $45 July 21 puts in the $11-12 range and used the proceeds to buy in the 39-40 range.
@Cassidy Run Yes Cassidy, added at 39. I am way overweight MAXR, but will add to again, if it slides more. It has filled the gap up from 1/13, but anything is possible. I entered this originally at 12.23 and added in the teens. I am still of the mind, that Legion will bring much more value to the table. I look forward, to our seeing share price multiples from here, over the next couple of years. - Cal
Bossco profile picture
Appreciate the article. Glad I deleted my $50 target sell trigger, as it was too conservative. Now to determine the next step...
Zorgo profile picture
@Cestrian Capital Research what do you think about BlackSky? Would it erode the market share in Maxar's imaging business?
SkiManJamie profile picture
@Zorgo it's difficult to say for sure what will happen but here are a few simple observations. Blacksky's resolution isn't as high so they will probably take business that can use lower resolution, no sense in paying for higher if you don't need it. But business that needs higher resolution, they just can't touch that. And then there's the growing pie.
RickJensen profile picture
@Zorgo Ditto SkiMan.
It's very different in terms of coverage, timing and resolution. BlackSky is the little guy, in most terms. They don't offer anything that MAXR doesn't already do better. The one positive is that being in the right spot at the right time, can change many things (temporal resolution). But, I wouldn't bet the farm on it. Especially since MAXR can see a book and BlackSky would miss a dog.

MAXR resolution (www.euspaceimaging.com/...) (www.euspaceimaging.com/...)
BlackSky resolution (www.euspaceimaging.com/...
Zorgo profile picture
@SkiManJamie @RickJensen Interesting, thanks for answering and for the image link. From what I was reading BlackSky is touting some sort of agnostic AI system to combine/utilize imagery from different providers. Could be a positive for Maxar, perhaps?
SkiManJamie profile picture
The previous arguments of negative FCF missed 2 important components of FCF. Fundamentally the company was delivering positive economic operating cash flow but much of that was going into working capital to support contracts. That's not always the most favorite destination of cash but it's fundamentally different than lighting the cash on fire. The other element was operating cash flow funding the construction of WV Legion.

Now with Legion nearing completion and first launch this September (knock on wood) with the second launch early next year, the company is positioned to convert that operating cash flow and reduced capex to FCF, we are well versed in that story.

The company's 2023 targets, which they recently bumped up, still look conservative to me and I chalk that up to conservatism until Legion lights up stage 1 then stage 2. Their FY23 EBITDA target is about 50% higher than FY20 excluding the EBITDA accounting contribution from EV and excluding the 1-time costs they faced in FY20 and hopefully don't repeat (COVID-related costs of course should disappear as pandemic protocols unwind). Significantly higher cash flow, reducing debt, should result in lower rates when the debt refinances with lower gross debt, further boosting earnings (that assumes market rates at the time do not exceed their current cost of debt).

Any company who wants to acquire Maxar has to seriously ask themselves if they take the run now or after WV Legion launch because a successful launch/commissioning would make it a more costly acquisition than pre-launch.
Jim H. profile picture

Well stated but you need to answer an important question regarding the following comment,

“Now with Legion nearing completion and first launch this September (knock on wood) with the second launch early next year, the company is positioned to convert that operating cash flow and reduced capex to FCF, we are well versed in that story.”

I have been reading this same argument in every financial statement since before they went public. Can you name for me any quarter or year that significant revenue wasn’t being diverted to building the next satellite?

The problem is satellites have a relatively short life on orbit (look at WV-4). To stay in business they will always need to be spending money on building their next on-orbit asset because without any their business will collapse.
SkiManJamie profile picture
@Jim H. They've been public for much longer than the construction of Legion but you might be getting caught up when they changed their named from MDA to Maxar and converted from a Canadian company to a US company.

From a technical point, they don't "divert revenue". And it's more than "the next satellite", it's a constellation. They have plenty of slides from presentations about the cost of this constellation relative to previous constellations, it's significantly more cost effective and much more capable as technology evolves. Yes they will need to build new ones as all satellite operators will but Maxar and other companies are working on capabilities to service in-orbit satellites to extend their life.

As for WV4, it failed, it didn't reach end of planned life and Maxar has done a reasonable job contending with that unplanned event especially considering many were expecting the company to be plunged into bankruptcy. And ya, space is hard, nobody says its easy except for idiots.
Jim H. profile picture
@SkiManJamie I was referring to a former CEO of DigitalGlobe I know very well, Jill Smith. It was back in 2007 when she made that same argument to the market that once the capX for building satellites is satisfied the profits will be tremendous.  

My problem isn’t confusion but knowing entirely too much. Legion is an unproven capability they are hoping will save the company. And to your point, it isn’t a single satellite but an entire constellation. Therefore, quoting forecasted capabilities for when a half dozen are on orbit contradicts your previous argument.

Either it’s a single event (launch) that changes the dynamic so they can stop funding new satellites or a constellation they are slowly going to launch over time which means continuing to spend capX and not having the revenue yet forecasted because only one of six is on orbit.
RickJensen profile picture
A great article that explains how we got here. Now with all the Cathie Woods talk, I'm actually happy she doesn't recognize what this stock is going to do.
Back when the sat bricked it. We started watching this. (There were several of us). When they paid off 100% on the flying brick, and I saw that the poison pill was a great idea, I went ahead and pretty much went all in. (5-6, with a touch more @ 14).
That bag-o-gold, has done nothing but grow.
Now as we get to the point where FCF and debt are going to obviously NOT be an issue. We will see the next massive move up with Legion 1 launch this fall. If all goes well with L1 and L2 launches (very happy they are on SpaceX) and warmups, that's where it should be obvious to every one. And that what's going to take PPS to triple digits.
It's nice to not have much in the way of competition and that also adds to the fun we will see over the next year. You should only expect to find one or two of these stocks in your career.
My number one pick. Next year will be awesome.
Charlie's Munger profile picture
@RickJensen arent they taking a hit on their latest brick? what happens when insurance market decides they are no longer a good risk?
RickJensen profile picture
@Charlie's Munger It's hasn't been determined what happened. I'm sure everyone wants to know. But these things happen, all the time. It's still space and the insurers are not doing it for free, when the sat works just fine (and that happens way more than not) they do OK. It's their business, so to stop offering insurance doesn't make sense when you insure space activities.
grebb profile picture
SXM-7 confirmed as a total loss

The technicians at Maxar Technologies might never know precisely what happened to SXM-7; the pay-radio operator’s satellite that was launched on December 13th and was working perfectly, yet failed a few weeks later on January 16th.

Maxar, in releasing its Q4 and full year numbers, admitted that it would be absorbing some direct costs associated with the craft’s build and despite the lost satellite now being the subject of a $225 million insurance claim

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