Execution, FCF outlook, and space scarcity support
continued multiple expansion, maint OP, PT to $28
Our view: MDA Space (MDA) reported strong 3Q24 results, with total sales of $282M, up 38% YoY and 2% higher than consensus. Adjusted EBITDA was $55.5M (19.7% margin), and the Satellite Systems segment led the growth in the quarter, up 78% YoY. MDA ended the quarter with $4.6B in backlog, up 49% from 3Q23. FCF was $205M in the quarter bringing the YTD total to $300M. We believe that as MDA continues to fill its added production capacity, it will support continued multiple expansion on the stock.
Key points:
MDA reported a strong 3Q24. Revenue was up 38% YoY with adj. EBITDA growth of 30% as well, both beating consensus estimates by 2% and 1%, respectively. Satellite Systems saw very strong growth (up 78%) on increased production from the Telesat Lightspeed program. Mgmt signaled that CHORUS is not expected to be launched until mid-2026 to provide additional testing. Although not necessarily positive for sentiment, we do not believe this will have a meaningful impact to Geointelligence results.
The strong 3Q24 FCF was a highlight of the results. MDA generated $205M in 3Q24 FCF, in addition to the $110M in 2Q24. MDA continues to call out positive 2024 FCF, and we estimate $400M for FY24. Mgmt has used the strong cash position to pay down over $100M in debt in 3Q24. Net leverage (now 0.8x) and FCF outlook should support improved sentiment.
With a clean balance sheet and positive FCF generation, we believe MDA has de-risked the capacity requirements to reach production of 2 satellites/day. Although not a significant portion of the story, we believe the company could look toward tuck-in M&A for strategic and geographic expansion. Further, we believe scarcity of investable space companies will be a positive for sentiment.
Management confirmed it expects the remaining ~$450M under the ATP contract awarded by year-end 2024. MDA has remained quiet on the customer (investors believe it could be additional work for Apple/ Globalstar). MDA continues to guide to a ~$5B backlog exiting 4Q24, which Prev. implies an incremental ~$200M in contracts in 4Q24. We continue to view incremental contract awards, and support for continued over 20% revenue growth late-decade as not reflected in the current stock price.
Maintain OP rating, raising PT to $28. We can appreciate some profit taking in the stock today, with the stock still up ~115% YTD. We see very limited risk to MDA from potential cost savings in the U.S. gov't under Pres. Trump. We do see incremental support for space under Trump 2.0, but MDA could face potential headline risk around potential NASA restructuring. However, we believe the valuation remains attractive, that the initial 2025 guidance will be a positive catalyst, and incremental contract awards should also support continued multiple expansion.