LEO Manufacturing Expansion Will Power Global Satellite Demand

Key Takeaways

• MDA Space's strong backlog, vertical integration, and operational leverage position it for higher profitability and rapid growth, outpacing current market expectations.
  
• Demand for digital satellites and sovereign constellations gives MDA unique opportunities for recurring contracts, long-term revenue visibility, and expanding market share.
  
• Heavy reliance on government contracts, geopolitical risks, rising competition, ESG scrutiny, and execution challenges could threaten MDA Space's revenue stability and profit margins.

Catalysts

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

• Analyst consensus recognizes the boost from MDA Space's multi-billion-dollar backlog and recent contract wins, but undervalues the extraordinary near-term runway for incremental awards; given current backlog momentum and the visibility into premier LEO constellation activities, there is potential for both 2025 and 2026 revenues and EBITDA to significantly outperform current expectations.
  
• While the consensus narrative highlights doubled manufacturing capacity from MDA's Quebec expansion by end-2025, it underestimates the impact of operational leverage: at full utilization, MDA could drive significant step-change improvements in EBITDA margins, setting the stage for structurally higher profitability as digital satellite demand accelerates.
  
• MDA's vertical integration strategy-underscored by the SatixFy acquisition-positions it to not only safeguard supply chains but also command pricing power and compress development cycles for next-generation digital satellites; this could meaningfully enhance gross margins and support rapid scaling as constellation demand ramps globally.
  
• The accelerating global race for secure, sovereign satellite constellations and persistent geopolitical tensions are triggering a once-in-a-generation surge in government and commercial procurement-MDA's unique cross-sector presence (defense, commercial, robotics, and geointelligence) means it is exceptionally well-placed for multi-year, recurring high-value contracts, sharply improving revenue predictability and long-term earnings power.
  
• The ongoing buildout of low-Earth orbit megaconstellations and the commercialization of in-orbit services create explosive, compounding, multi-decade growth in the global addressable market; as one of the few companies with proven expertise across digital satellites, robotics, and Earth observation, MDA Space is positioned to transform sector leadership into durable outsized market share and above-industry-average revenue compound annual growth rate.

MDA Space Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on MDA Space compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming MDA Space's revenue will grow by 24.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.1% today to 10.4% in 3 years time.
• The bullish analysts expect earnings to reach CA$243.5 million (and earnings per share of CA$1.88) by about July 2028, up from CA$98.5 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 bullish analyst cohort, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, down from 49.7x 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 2.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

MDA Space Future Earnings Per Share Growth

Risks

• Heightened geopolitical tensions and increased protectionism risk could restrict MDA Space's access to international contracts and create tariff-related complications, potentially shrinking total addressable market and putting long-term revenue growth at risk.
  
• The company remains heavily reliant on large Canadian government contracts such as Canadarm3, so any changes in government priorities, budgetary delays, or cuts could result in lumpy revenues and significant earnings volatility.
  
• Growing competition from global players and new entrants in satellite manufacturing may erode MDA Space's pricing power-especially as modules and software-defined satellites become commoditized-which may put persistent pressure on net margins.
  
• ESG concerns and public scrutiny around defense and space activities could increase regulatory burdens, compliance costs, or reduce access to certain investor pools, ultimately impacting earnings and share price performance.
  
• MDA Space's exposure to large, multi-year fixed price contracts (for example, Telesat Lightspeed and Globalstar) creates ongoing program execution risk; any cost overruns, supply chain disruptions, or delays could impair gross margins and lead to lower net income.

Valuation

• The assumed bullish price target for MDA Space is CA$46.0, which is the highest price target estimate amongst analysts. 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 bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$46.0, and the most bearish reporting a price target of just CA$32.5.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$2.3 billion, earnings will come to CA$243.5 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of CA$39.74, the bullish analyst price target of CA$46.0 is 13.6% 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.