Should Investors Book Profit in this Mid Cap Technology Stock – MAXR

Maxar Technologies Inc (TSX: MAXR) is an integrated space and geospatial intelligence company with a full range of space technology solutions for commercial and government customers including satellites, Earth imagery, geospatial data and analytics.

Why Should Investors Book Profit? 

• Weak liquidity profile: In Q4 FY21, the company's current ratio was 0.85x compared to the industry median of 2.04x, while the quick ratio stood at 0.79x compared to the industry median of 1.29x. These lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
  

• Heavily leveraged: The company’s debt to equity ratio at the end of December 31, 2021, stood at 1.43x, which is too high against the industry median of 0.33x. Additionally, its net debt to EBITDA stood at 12.53x against the industry median of 7.27x. These factors imply higher balance sheet risks.
  

• Trading above the upper band of Bollinger Band: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating that the company is possibly overbought and due for a price correction or consolidation.

     One-Year Price Chart (as on March 21, 2022). Source: REFINITIV, Analysis by Kalkine Group

 Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group 

Stock recommendation

The company's performance in FY 2021 demonstrated that it is executing well on its strategic growth plans, resulting in healthy revenue, Adjusted EBITDA growth, free cash flows, and notable awards from a diverse set of customers, which are the key positives for the company. However, when compared to an industry median, the company's liquidity ratios are on the lower side indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication. Moreover, the company is carrying a high debt burden on its shoulders, which implies a huge balance sheet risk. Furthermore, technical indicators indicate that the stock price may consolidate or correct from here. Hence, considering the aforesaid rationales and valuation done, we have given a “Sell” recommendation in the stock at the last closing price of CAD 45.21 on March 21, 2022. 

*The reference data in this report has been partly sourced from REFINITIV.

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