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Near all-time high, MDA still looks cheap

MDA has focused on its resurgent space division in recent years, a move that’s paid off for shareholders.

Investors continue to gravitate toward MacDonald Dettwiler and Associates Ltd., betting on the space technology firm's push into new geographic frontiers.

Shares of the company behind the Canadarm robotic arm are trading near all-time highs and most analysts believe they'll continue to gain altitude as MDA vows to aggressively pursue growth through mergers and acquisitions in the next few years.

MDA is looking to the United States, as well as Brazil and India, to become a top player in the surveillance and intelligence business.

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And even though the stock is getting expensive, trading at about 14 times earnings, some long-term investors say it's still cheap.

"We aren't paying a big price for the privilege relative to some of the other tech stocks out there in the universe," said Stephen Hui, a partner and portfolio manager at Pembroke Management Ltd., which has owned the stock in its funds since MDA went public about 14 years ago.

"It's not the fastest-growing tech company out there – that we concede," Mr. Hui said. "Even though the stock has run somewhat, I think there's still room for the valuation multiple to expand."

MDA is known for making the robotic arms used on the International Space Station, but also for having the sale of its space division to a foreign entity blocked by the federal government in 2008, with Ottawa citing national security concerns.

MDA had wanted to sell the space division – which includes Dextre and the Radarsat-2 satellite – to focus on what was then its faster-growing information products business, which provided property mapping products.

A lot has changed since then. In late 2010, the company changed course, selling the property-information part of the company to refocus on its space business as it began to pick up more work.

The move has slowly paid off for investors. The stock is up 60 per cent since that sale in 2010, but it has been bumpy ride. The shares really started to gain momentum in mid-2012 after MDA bought Space Systems/Loral to expand its U.S. footprint.

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The company is expecting that acquisition to transform MDA into a leading manufacturer of commercial communications satellites, and open up the market to more U.S. business in the future.

"We have our plan to aggressively go after the U.S. market," MDA chief executive Daniel Friedmann told investors last week after the company released its latest quarterly results, which showed that profit more than doubled in the fourth quarter compared with the year-ago period.

Although the company is making money, analysts see challenging markets in the near term as the company tries to grow its business.

TD Securities analyst Scott Penner has a "hold" on the stock, quoting the company's own recent description of the U.S government being on a "little capex holiday," referring to the pullback in government capital expenditures.

"We are waiting for a more visible growth trajectory before getting more constructive on the name," Mr. Penner said in a recent note.

Still, many believe MDA won't disappoint.

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"We believe long-term investors will be well served," GMP Securities analysts Deepak Kaushal said in a recent note.

He's one of seven analysts with a "buy" on the stock, while three (including Mr. Penner) have a "hold," according to S&P Capital IQ.

The stock closed down 23 cents to $80.98 on the Toronto Stock Exchange Monday, not far from its all-time high of $85.30 reached in September.

The analyst consensus price target over the next year is $90.83, according to Thomson Reuters.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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