What happened
Pity Maxar Technologies (MAXR) shareholders: They just can't catch a break.
Last week, the stock received two bullish reports from Wall Street, which you would have expected to send the stock flying. On Thursday, a neutral R.W. Baird initiated coverage with a $39 price target that implied roughly 14% upside for the stock, but it fell anyway. One day later, Morgan Stanley initiated coverage with an even more bullish overweight rating and $50 price target (48% upside), but Maxar stock rose less than 2%.
And on Monday, after last week's underwhelming reaction, no one said "boo" to Maxar, but the stock plummeted to close 8.8% lower.
Image source: Getty Images.
So what
In both reports last week, covered by StreetInsider.com, analysts focused on the impending catalyst of the first tranche of Maxar's WorldView Legion satellites reaching orbit and beginning to snap photos of Earth for sale to its customers. Baird predicted success for the effort, leading to significant upside for the stock.
Morgan Stanley was even more enthusiastic, predicting the WorldView Legion project "will fill unmet demand" and contribute about 10% revenue growth by 2023. Moreover, Morgan Stanley predicted that Maxar's business, which has been unprofitable for two years running, will return to profitability this year, helping to add as much as 5 percentage points of profit margin to the business over the next two years.
Now what
So why did Maxar sell off today?
As both analysts noted, WorldView Legion satellites haven't yet launched, and won't begin orbiting before the fall (with additional satellites in the first half of next year). There's also some discussion in the reports of "delays on component and functional testing of the satellite for the September/4Q21 launch" -- a problem that Baird says warrants caution in the near term.
Longer term, however, there seems less reason to worry. As Morgan Stanley said, the U.S. Department of Defense (Maxar is a defense stock, as well as a space stock) considers getting Maxar's satellites into orbit a top national security priority and seems intent on accelerating the program. Barring a launch failure, therefore, it seems clear that these satellites will reach orbit eventually, and that there will be a ready market for the images they produce.
The only question is: Are investors willing to wait patiently for that eventuality, and the profits that come with it?
