Growing Protectionism And Tech Competition Will Undermine Long-Term Outlook

Key Takeaways

• Mounting geopolitical tensions and protectionist policies threaten access to key markets, while reliance on a few large contracts increases revenue volatility.
  
• Rapid tech innovation and new competitors pressure margins, as supply chain disruptions and capital market tightness constrain profitability and growth potential.
  
• Diversified contracts, advanced technology investments, and expanded production capacity position MDA Space for sustained revenue growth, stable earnings, and improved profitability amid rising global satellite demand.

Catalysts

Provides space technology solutions and in Canada, the United States, Europe, Asia, the Middle East, and internationally.

• Increasing protectionism and geopolitical tensions may result in major governments, particularly in Europe and the United States, prioritizing domestic space infrastructure suppliers for defense, surveillance, and satellite programs, which would sharply limit MDA Space's access to its core growth markets and directly constrain future revenues and backlog replenishment.
  
• The accelerating pace of technological innovation and rapid emergence of NewSpace competitors threaten to commoditize satellite and robotics solutions, including software-defined and direct-to-device satellites, putting sustained downward pressure on pricing and risking long-term erosion of both gross and net margins.
  
• Elevated interest rates and ongoing tightness in capital markets are likely to restrict MDA Space's access to affordable growth capital, driving up financing costs for its R&D-intensive and capex-heavy programs, thereby reducing free cash flow and limiting earnings potential over multiple years.
  
• The company's heavy reliance on a concentrated set of large government and anchor commercial contracts (such as with EchoStar) significantly exposes it to abrupt contract modifications or cancellations, budget uncertainties, or regulatory challenges, making future revenue streams and earnings increasingly volatile and unpredictable.
  
• Escalating supply chain disruptions, component shortages, and new regulatory barriers in the aerospace sector are expected to increase project costs and cycle times, compressing margins and potentially leading to delayed deliveries, missed milestones, and higher working capital requirements, all of which threaten near-term and long-term profitability.

MDA Space Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on MDA Space compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming MDA Space's revenue will grow by 19.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.5% today to 11.0% in 3 years time.
• The bearish analysts expect earnings to reach CA$253.1 million (and earnings per share of CA$1.96) by about August 2028, up from CA$114.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, down from 45.8x today. This future PE is lower than the current PE for the CA Aerospace & Defense industry at 31.1x.
• Analysts expect the number of shares outstanding to grow by 2.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

MDA Space Future Earnings Per Share Growth

Risks

• MDA Space's strong and growing backlog-exceeding six billion dollars after including the recent EchoStar contract-provides multi-year revenue visibility and reduces its short
• to medium-term earnings volatility, potentially supporting higher net income and share price stability.
  
• The global secular increase in demand for satellite connectivity, driven by digital transformation, IoT proliferation, defense needs, and cloud infrastructure, acts as a long-term catalyst for satellite communications and robotics, directly expanding the company's addressable market and supporting top-line revenue growth.
  
• Strategic investments in next-generation technologies such as software-defined satellites, advanced digital beam forming, and 5G-compatible satellites position MDA Space to move up the value chain and command higher margins, which could drive long-term net margin expansion and improved profitability.
  
• Participation in major programs-including Canadarm3, Telesat Lightspeed, Globalstar, and the new CHORUS Earth observation constellation-as well as steady contract flow from both government (Canadian and international defense) and commercial customers, diversifies revenue streams, reducing reliance on any single contract and supporting consistent earnings.
  
• The company's increased production capacity with the new Montreal facility and successful execution of high-profile contracts (e.g., EchoStar direct-to-device LEO constellation), alongside flexibility to scale further, positions MDA Space to capitalize on the rapid growth in satellite mega-constellations, enabling sustained revenue and operating earnings growth over several years.

Valuation

• The assumed bearish price target for MDA Space is CA$36.2, which represents two standard deviations below the consensus price target of CA$51.43. This valuation is based on what can be assumed as the expectations of MDA Space's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$56.0, and the most bearish reporting a price target of just CA$33.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$2.3 billion, earnings will come to CA$253.1 million, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of CA$42.09, the bearish analyst price target of CA$36.2 is 16.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.