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Why Maxar Technologies Stock Just Dropped 13%

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

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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.

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