MDA Space is one of the most discussed companies in town.
Most of its operations are exactly where we live, in Montreal, Canada.
We know quite a few engineers who have recently joined the company.
In Montréal, there is a real effervescence around MDA. Talent is joining, and developments are starting to get discussed frequently in the news.
Yet, we think its bright future is not fully reflected in the current share price. We see the recent pullback as an attractive opportunity to invest in a high-growth company benefiting from the long-term expansion of the space industry.
This piece analyze the company per our usual framework but also provides differentiated research not covered anywhere else in certain areas:
Our discussions with MDA engineers and recruiters. Top engineering talent is actively joining the company. While this may weigh on profitability in the short term, given the cost of hiring top talent, we see it as a strong positive for long-term innovation and execution.
Our understanding of Canadian politics and the Carney government. When a company becomes a source of national pride, the government tends to support it through policy, promote it internationally, and stand behind it during periods of difficulty. MDA was recently described as a “Canadian champion” by Carney’s office.
MDA has been executing very well recently, signing several large contracts and expanding its facilities while leveraging its growing US footprint.
We expect more announcements of this kind in the months ahead.
If MDA continues to execute, we think the stock is trading at a very attractive valuation. It’s rare to find a high-growth space company with this level of defense exposure at such a low multiple.
The market either hasn’t fully recognized the growth ahead or isn’t willing to give the company credit for it yet. Some peers have more scale and deserve a higher multiple, but the difference in valuation is still significant.
We are adding MDA Space (NYSE: MDA) to our portfolio, the “Aurelion Index”. It also trades under the MDA ticker in Canada on the TSX.
Table of Contents
The Space Industry Is Taking Off
MDA Space: At a Glance
The Investment Thesis
Customers & Revenue Mix
The Canadian Government Advantage
Talent Acquisition & Hiring Trends
The Path to Free Cash Flow
Drivers of Value Creation
Valuation & Price Target
More Thoughts on the Space Industry
What Could Go Wrong
Our Final Thoughts