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Berman's View

A down-to-earth profit provider Add to ...

Companies that have big dreams can scare away conservative investors, many of whom focus on the high costs and the potential failure of realizing those dreams. In the case of MacDonald Dettwiler and Associates Ltd., the dream looks particularly fanciful. Satellite refuelling stations? Uh, okay.

But the great thing about MDA is that its dreams are grounded by steady profits that make the stock look, well, downright dreamy. Refuelling stations might be just the thing to drive another source of revenue for the company, but the plan is by no means the Hail Mary pass of a desperate company.

MDA, like just about every other company, took a hit during the financial crisis, which shrank its profit in the third quarter of 2009 to a mere 3 cents a share. That was unusual. Take a look at its quarterly profits over the past decade and what you'll see is wonderfully consistent growth ranging between 15 and 20 per cent a year.

In the first quarter of 2010, earnings rebounded to 71 cents a share, a record for the period. No wonder the shares have been moving higher, rising more than 40 per cent over the past 12 months and 160 per cent from their low in 2008. The shares are now just 16 per cent from their record high, reached in 2007.

Analysts are now overwhelmingly bullish on MDA. After the release of MDA's first-quarter earnings in May, both GMP Securities and TD Newcrest upgraded the stock to a "buy" recommendation from "hold." This month, Stifel Nicolaus, a U.S. brokerage firm, hopped on board, initiating coverage on the stock with a similar "buy" recommendation.

Of course, bullish analysts - a necessary ingredient for a stock to be priced to perfection - can also scare away conservative investors. But in the case of MDA, it is hard to see absurdly high expectations built in the stock. It trades at just 16-times trailing earnings, giving it a middle-of-the-road valuation.

As for concerns about the share price closing in on its record high - perhaps limiting the potential upside from here - keep in mind that MDA's earnings over the past four quarters are nearly 30 per cent higher than they were in 2007. And that's with a recession. Despite the stock's recent rebound, there should be good days ahead.

Follow on Twitter: @dberman_ROB


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