Investors should get more clarity this week on the outlook for MacDonald Dettwiler and Associates Ltd , the country's leading corporate entry in the space business.
MDA reports first-quarter results Tuesday after the markets close. The numbers could help settle a debate in the investment community over the prospects for the high-technology company, best known to Canadians as the maker of the robot arm on the U.S. space shuttle.
Depending on the analyst, MDA is either a table-pounding buy or a company with a declining order backlog that should make buyers wary.
Among those on the sunny side is RBC Capital Markets' Steven Arthur. His base case sees MDA shares rising from their current level of $43.68 to $54 over the next year. If the chips happen to fall the company's way, and it wins more satellite orders than expected, he sees the stock lifting off like, well, a satellite, and soaring all the way up to $62.
Even if business conditions turn out worse than expected, he thinks the stock will still manage to eke out a slim gain, to $45 over the next year. In a recent note to clients, he describes MDA as a "strong technology franchise at a compelling price."
Mr. Arthur is looking for MDA to report first-quarter earnings of 86 cents a share, slightly above consensus forecasts of 84 cents.
The outlook for the rest of the year will depend heavily on the number of satellite orders MDA might win. Last quarter, the company said six commercial satellite possibilities are up for grabs over the next year or so, and analysts will be looking for insights into the status of the bidding.
Mr. Arthur said he's looking for MDA to pick up at least one order in his base case scenario. Winning two this year would help the stock achieve his best case scenario.
Less optimistic is Canaccord Genuity analyst Jeff Rath, who has a "hold" rating on the stock and a $44 target price over the next year.
"We continue to believe that the outlook for the business appears uncertain, driven by declining order backlog and macroeconomic challenges," Mr. Rath wrote in a recent report.
MDA's backlog of orders, a good indication of future revenue trends, has been slipping. It was $805-million at the end of 2011, compared with $998-million at the end of 2010.
Government spending cuts are also a concern. The federal government's March budget did not set aside funds to continue the Radarsat Constellation Mission, a project to further survey the earth using satellite technology. MDA responded by announcing that it would have to adjust staff levels.
MDA has a 3.2-per-cent dividend yield, based on the current price, indicating holders will receive decent income while awaiting further clarity on the company's success in winning new satellite business.
Despite his less than enthusiastic rating on the stock, Mr. Rath acknowledges that MDA has positives, including scarcity value as the only major space play in Canada. (It continues to exist as a publicly traded entity only because the Conservative government took the rare step of blocking a foreign takeover of the firm back in 2008.) Mr. Rath also likes the firm's management, which "continues to execute well in a difficult environment."
MDA president Daniel Friedmann is an independent thinker, known for his enthusiasms, which range from skiing to Bible study. The self-described student of cosmology has written a book, published last month, that contends scientific estimates of the age of the universe, the sun and the date of the appearance of life on earth can all be matched to creation dates in Genesis, with appropriate adjustments.