Please ensure Javascript is enabled for purposes of website accessibility

Why Maxar Technologies Stock Just Dropped 13%

By Rich Smith - Aug 7, 2018 at 12:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Short-seller claims Maxar stock is worth $0 a share.

What happened

Maxar Technologies (MAXR -3.40%) -- the pride of Canada's space industry -- reported a big quarterly earnings beat in the second quarter. That didn't save its stock from falling 14% in the week after earnings were released, however.

It's also not saving the stock from the effects of a short attack launched just this morning, which is driving Maxar down another 13% as of 11 a.m. EDT.

Satellite beaming transmission to Earth

Image source: Getty Images.

So what

This morning, NYC-based short-seller and avid Twitter-er Spruce Point Capital tweeted  a "strong sell opinion" on Maxar Technologies stock, accusing the company of "brazen intangible asset accounting." Maxar earned $100 million in GAAP profits on $1.6 billion in revenue last year -- but Spruce Point Capital argues the stock is worth precisely nothing, and is going to $0 in the long term.

As Spruce Point explained, Maxar's "organic" sales are down nearly 13% so far this year, and satellite imaging prices are falling (which will continue to hurt revenue). Meanwhile, debt levels are high and could rise some more as Maxar invests ">$300m per year" in space hardware.

Now what

So is Maxar doomed? I don't buy it.

For one thing, not all of Spruce Point's numbers add up. The analyst says, for example, that Maxar is only generating between $0 and $50 million in positive free cash flow. But according to data from S&P Global Market Intelligence, trailing free cash flow is actually at $226 million. Even deducting the purchases of "intangible assets" that so upset Spruce Point, and which amounted to $123 million over the past year, still leaves Maxar generating more than $100 million -- and more than twice the amount of cash the short-seller says the company is making.

Now, that's not to say I think Maxar stock is a buy. Fact is, Spruce Point is dead on with its observation that Maxar is carrying too much debt -- $3.2 billion net of cash, which is more than the company's own market cap. At a debt-adjusted market cap of 58 times annual last year's earnings (which are in fact declining this year), I agree that the stock is overpriced and should not be bought.

I simply don't agree that Maxar is going to zero.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Maxar Technologies Stock Quote
Maxar Technologies
$25.87 (-3.40%) $0.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.