New Globalstar Contract And Facility Expansion Will Boost Satellite Production Capacity By 2026

Key Takeaways

• MDA Space's contract wins and successful project advancements indicate growing demand and potential for revenue growth and improved margins.
  
• Expansion of production capacity and focus on R&D bolster their competitive edge, positioning them well in the growing global space market.
  
• Potential cost structure impacts from tariffs, project execution risks, capital spending concerns, and reliance on major contracts could affect MDA Space's financial performance.

Catalysts

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

• MDA Space's significant new contract awards, including $2.4 billion in 2024 and a recent $1.1 billion follow-on contract with Globalstar, demonstrate growing demand for their differentiated satellite and space technology, which is likely to drive future revenue growth.
  
• The successful advancement of key design phases for major projects like Telesat Lightspeed and Globalstar’s next-generation LEO constellation is expected to lead to increased work volumes and operational efficiencies, positively impacting revenue and adjusted EBITDA margins.
  
• The expansion of MDA’s production facility, expected to be operational in late 2025, will enable higher manufacturing capacity, supporting future revenue growth from satellite production by potentially doubling output capacity by 2026.
  
• MDA Space’s strong growth trajectory in the global space economy, projected to expand significantly, positions the company to benefit from increased defense and commercial space investments, likely enhancing revenue and earnings.
  
• The company’s focus on R&D and strategic capital expenditures supports technological advancements and market differentiation, which should reinforce competitive advantage, contributing to potential long-term revenue growth and stable or improving net margins.

MDA Space Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MDA Space's revenue will grow by 23.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 10.5% in 3 years time.
• Analysts expect earnings to reach CA$211.3 million (and earnings per share of CA$1.66) by about March 2028, up from CA$79.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, down from 42.7x today. This future PE is lower than the current PE for the CA Aerospace & Defense industry at 35.6x.
• Analysts expect the number of shares outstanding to grow by 1.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.06%, as per the Simply Wall St company report.

MDA Space Future Earnings Per Share Growth

Risks

• The potential impact of recently imposed U.S. tariffs and counter tariffs by the Canadian government is unknown and could affect MDA Space's cost structure and profitability. This could impact net margins and earnings if mitigation strategies are not effective.
  
• There is execution risk associated with the timely and successful completion of critical design reviews for major projects like Telesat Lightspeed and Globalstar. Delays or issues could affect project timelines and revenue recognition.
  
• The company is investing heavily in capital expenditures, with planned spending between $210 million and $240 million in 2025. If expected returns do not materialize or cost overruns occur, this could negatively impact free cash flow and capital efficiency.
  
• As the final integration and operational details of the Montreal facility expansion remain underway, there is a potential risk of project delays or cost escalations, which could affect future production capacity and profitability.
  
• Significant reliance on a small set of major contracts, such as those with Telesat and Globalstar, implies that any adverse developments in these relationships or contracts could have a substantial impact on revenue and overall financial performance.

Valuation

• The analysts have a consensus price target of CA$34.688 for MDA Space based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$39.0, and the most bearish reporting a price target of just CA$31.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$2.0 billion, earnings will come to CA$211.3 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of CA$27.77, the analyst price target of CA$34.69 is 19.9% higher.
  
• 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.