Maxar Technologies Inc. T.MAXR

RBC

[retiredcf]

Their upside scenario target is US$56.00. GLTA

May 25, 2022

Outperform

NYSE: MAXR; USD 28.86; TSX: MAXR

Maxar Technologies Inc.

EOCL contract largely de-risks 2022; greater confidence in 2023 from incremental upside

Price Target USD 44.00

Our view: Today, Maxar Technologies (MAXR) announced an Electro- Optical Commercial Layer (EOCL) contract award with the U.S. National Reconnaissance Office (NRO). The contract is a five-year base contract with five additional years of options through 2032 and is worth up to $3.24B. MAXR management took the opportunity to tighten the 2022 guidance range, and the contract should significantly increase confidence in the 2022 outlook. In our view, the contract award has significantly de-risked the company’s 2022 revenue outlook and provides further potential for market share gains. We raise our estimates slightly and maintain our Outperform rating.

Key points:

Maxar (MAXR) receives 10-year contract award worth up to $3.24B. The contract award includes a five-year base commitment worth just over $1.5B, or ~$300M/year, with an additional option for services at $40M for a potential of ~$340M in the fifth year. Maxar has also been awarded options from the government for years six through ten with potential annual values of up to $340M/year. We view the contract award to be very significant for the company, as it is no longer operating under one-year contract extension awards. The five-year commitment provides a stable revenue stream for the company with upside opportunities as additional capacity is brought on-line. Moreover, we continue to believe the demand for MAXR’s services will remain elevated as a result of current activities in Eastern Europe and Asia.

Management tightens FY22 guidance on news of EOCL contract award. With today’s contract announcement, management tightened the guidance range (i.e., raised the low end and lowered the high end) for the Earth Intelligence segment and company total revenues and adjusted EBITDA. Although the midpoints remain the same, we believe the adjustment should increase investor sentiment around the company’s ability to deliver results. The uncertainty regarding the EOCL contract was the key reason for the prior guidance range.

EOCL contract will expand on the scope and value currently addressed in the EnhancedView Follow-On (EVFO) contract and its predecessor contracts. EOCL will expand to additional capabilities of shortwave infrared, non-Earth imaging, nighttime imaging, and theater direct downlink. The flexible contract structure allows for customers to add increased technology innovation and capability development to the current contract in addition to an updated licensing agreement for sharing of data that removes ambiguities in the previous license. While management was reluctant to commit to how much incremental upside the new contract could provide, we believe increased visibility on the revenue and EBITDA contribution from the contract will be a source of upside to estimates into 2023 and supports confidence in the company’s 2023 outlook.