Maxar Technologies is an often overlooked pure-play space stock that’s building momentum

Published Mon, Feb 8 20211:58 PM EST

Michael Sheetz @in/michaeljsheetz @thesheetztweetz

(This story is for CNBC PRO subscribers only.) Maxar Technologies is one of a small number of pure-play space stocks and, following a multi-year turnaround effort under CEO Dan Jablonsky, the company is poised to reap the benefits of its core satellite imagery business and its position as a revenue-generating company in the growing space economy. "We pride ourselves on leveraging innovation to deliver on our commitments to customers while generating healthy returns for our shareholders," Jablonsky said during an investor presentation in December. The company has about 4,500 employees around the world, with Maxar's business largely split into three parts: Satellite imagery (also known as Earth observation), satellite manufacturing and space robotics. Maxar has a market value of about $3.2 billion, with a substantial long-term debt load of $2.4 billion that brings the company's total enterprise value to $5.6 billion. Notably, Maxar's market value sits at a fraction of other pure-play space stocks like Virgin Galactic , Iridium or Viasat , even with the company's stock having tripled in the past 12 months. The company's stock trades near $52 a share as of Monday, with a 35% gain since the beginning of this year. The company generated about $1.7 billion in revenue in 2019, a number that is expected marginally improve when Maxar reports 2020 full year results, according to FactSet. Many Wall Street analysts believe the stock could be getting ahead of itself, however. Maxar's stock has three buy and eight hold ratings, with an average target of $40.56 — or about 20% below the current share price. No analysts rate Maxar's stock with the equivalent of a sell rating though. Maxar declined to CNBC's request for interviews with company executives for this report, noting the company's upcoming earnings report on Feb. 24. A 2020 turnaround Maxar's stock used to trade above $60 a share as recently as mid-2018, but underperformance and the company's heavy debt load from acquisitions under prior CEO Howard Lance made it a target of Spruce Point Capital's Ben Axler, an infamous short-seller. Axler's firm issued a research report in August 2018 titled "Falling Out of Orbit to Zero," arguing that Maxar faced severe financial strain. Although Maxar responded to allegations within Spruce Point's report , the stock began to fall. While Lance helped establish Maxar in the U.S., moving away from Canada, the stock cratered to almost $5 a share in January 2019 after loss of a key imagery satellite. The WorldView-4 satellite malfunctioned in space and was deemed irrecoverable, with Maxar writing off the satellite's remaining value. Overall, Canaccord Genuity analyst Ken Herbert told CNBC that "prior management had really sort of lost their way." Lance resigned as president and CEO in January 2019, with Maxar's board of directors immediately replacing him with Dan Jablonsky in both roles. Jablonsky had been with the company's subsidiary DigitalGlobe since 2012, serving as the president of DigitalGlobe before his promotion to the top of Maxar's leadership. In a February 2020 meeting with CNBC, Jablonsky described what happened as "rather a tough time for the company." "It was one series of events, I think, in a chain of difficult events," Jablonsky said. Maxar's stock traded largely between $10 and $20 a share for the 18 months following Jablonsky's appointment, with investors wary of the company's debt load and looking for signs it had turned performance around. Then, in August 2020, Wall Street's sentiment began to shift. The company's second quarter results that month marked a watershed moment, with analysts largely impressed with Maxar's turnaround . "Maxar delivered Q2 results well ahead of expectations, demonstrating the necessity of its solutions to government and commercial customers, as well as improved operating performance," RBC Capital's Steve Arthur told investors. "We continue to see multiple drivers of long-term earnings growth, with Maxar uniquely positioned to deliver on key opportunities." Jablonsky told CNBC last year that, once he was in charge, "we made very quick decisions to change the operational model." "[At the time] we said: 'We're going to be leaner, we're going to be faster decision makers," Jablonsky added. The stock began to steadily climb after mid-2020, with Herbert saying that Maxar came back from "the fiscal cliff" it was facing. "Financially they're in a much better shape now, and operationally I think Dan [Jablonsky] has de-risked portfolio a lot — through divestitures and deleveraging — but I think he has really brought a focus on execution," Herbert said. "It's a different company today." The core satellite imagery business About 60% of Maxar's annual revenue comes from its fleet of imagery satellites, with a significant part of those funds coming through long-term contracts from the Pentagon's National Reconnaissance Office. Jablonsky said in December that Maxar's imagery satellites "produce over 3.5 million square kilometers of data every single day, and contribute to our two decade 120 petabyte archive of our planet." Maxar's WorldView satellites generate the company's highest quality satellite imagery, but the three operating in orbit were launched between 2007 and 2014. Two years ago Maxar initiated a $600 million capital program, to build and launch a series of six next-generation satellites called WorldView Legion. Getting those satellites in orbit and operating successfully will be the next big turning point for Maxar, as it pivots the company from what Jablonsky describes as a "big spend" to "reaping the benefits." Herbert described the Legion launches, which are expected to begin in the second half of this year, as "paramount" to Maxar's success. "Their ability to compete, if they don't get those satellites up there, is significantly impacted, and so that's probably the most important catalyst right now," Herbert said. Notably, the NRO expects to soon issue new long-term satellite imagery contracts, and Maxar faces new competition from private companies Planet Labs and BlackSky. However, Maxar losing an effective monopoly on NRO imagery contracts would not necessarily hurt the company, Herbert explained, and may actually be healthy. The overall "pie" of the total addressable market for satellite imagery has grown, Herbert said, which is expected to offset the percentage losses Maxar may experience. Maxar also began expanding its satellite imagery downstream last year when it acquired full ownership of analytics specialist Vricon, which it previously held as a joint venture with Swedish aerospace group Saab. The deal, funded through $150 million in new long-term debt, brought Vricon fully into Maxar's portfolio, which Jablonsky told CNBC at the time would help "supercharge" the company's satellite imagery database through photo-realistic, 3D data models. "It puts us into a very strong cash flow position and profit position going forward," Jablonsky said in June. Exposure to multiple space markets Beyond satellite imagery, Maxar has exposure to the emerging markets in space through its hardware manufacturing and robotics divisions. To date, one of Maxar's strengths has been its satellite manufacturing, having built over 300 satellites of widely varying sizes and purposes. One point of concern is the recent failure suffered by a Sirius XM satellite , which was built by Maxar. However, Herbert noted that the satellite's issue does not appear to be "really an issue with Maxar, but just points to some of the riskiness in the sector." In space robotics, Maxar has developed and built all five of the robotic arms that are in use by spacecraft on Mars, with a sixth on its way onboard NASA's Perseverance rover. Jablonsky in December explained why he sees robotics as a prevailing need within the space sector. "I'm a big proponent of humans being able to access an operating space ... however, it does add a lot of time, risk and mission costs," Jablonsky said. "Space robotics are one aspect of the solution. Robots can be force multipliers for human activity and space that helps free up humans to do those jobs for which they're uniquely qualified, and leaves other dangerous and mundane jobs to robots." Furthermore, Maxar is building the first piece of NASA's lunar gateway station that will orbit the moon under a $375 million contract. Known as the power and propulsion element, Jablonsky said last year that Maxar is "very confident about" the technology it is developing for NASA, especially because of the company's success building electric propulsion systems for commercial satellites. Maxar has also teamed up with Amazon Web Services, which has been expanding its space offerings , "to develop a high performance computing solution that produces weather forecasts 58% faster than NOAA supercomputers," Jablonsky said in December. A 'space frenzy' The company was among the pure-play space stocks that rallied last month amid speculative trading after Cathie Wood's Ark Invest revealed that it is preparing to launch a space exploration ETF . Shares of Maxar surged 20% the day after the Ark announcement. J.P. Morgan downgraded its stock rating for Maxar to neutral from buy, with analyst Ben Arnstein saying the company's "turnaround path has now been fully incorporated into market expectations and we think it's prudent for investors to take profits." "While we still see a path to operational improvement with strong cash flow generation in 2022, this appears to be reflected in the stock's strong performance and higher valuation," Arnstein told clients. But, unlike the four pure-play space companies that have taken the SPAC route in the past two years, the company's strength exists in straddling the gap between older government contract-reliant companies and new, pre-revenue ventures. "Maxar is not 100% a sort of 'New Space' company in the emerging space frenzy but it's still very much trading like a satellite services slash or defense prime [contractor] type stock which, in my view, significantly sort of undervalues the opportunity," Herbert said. Jablonsky, for his part, remains ardently bullish on the company's long term growth even after the stock nearly doubled last year. "We see cash flow getting really good going forward as we complete the Worldview Legion bill, and quit spending on that system and getting revenue from it," Jablonsky said in December. "I will continue to knock down wins, and I will continue to make money for our investors," he added. – CNBC's Michael Bloom contributed to this report. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

A company manufacturing facility in Palo Alto, California.

Maxar

(This story is for CNBC PRO subscribers only.)

Maxar Technologies is one of a small number of pure-play space stocks and, following a multi-year turnaround effort under CEO Dan Jablonsky, the company is poised to reap the benefits of its core satellite imagery business and its position as a revenue-generating company in the growing space economy.

"We pride ourselves on leveraging innovation to deliver on our commitments to customers while generating healthy returns for our shareholders," Jablonsky said during an investor presentation in December.