(By Balaseshan) CIBC World Markets Inc. analyst Stephanie Price upgraded her rating on shares of Macdonald Dettwiler & Associates Ltd. (TSE:MDA) to "Sector Outperformer" from "Sector Performer" and increased her price target to $66 from $47.50.
The brokerage raised its 2012 EPS estimate for the surveillance and satellite imaging company to $4.51 from $3.89 and its 2013 estimate to $6.22 from $3.95.
MDA announced on June 26 a definitive agreement to acquire Space Systems/Loral for $875 million or 5.7 times EBITDA. Space Systems/Loral is a division of Loral Space & Communications Inc. (NASDAQ:LORL), whose board has approved the transaction. Regulatory approval is required and the deal is expected to close in Q3/Q4.
Price said MDA, with the acquisition, gains critical mass in the commercial satellite manufacturing market. Space Systems/Loral has a 50-year history and has delivered over 240 satellites. With the acquisition, MDA more than doubles its revenues to $1.9 billion and triples its backlog (with Space Systems/Loral contributing about $2 billion).
MDA gains a major presence in the U.S. market, including Space Systems/Loral's facilities in Palo Alto. Price expects that this presence should better position MDA to win U.S. defense and intelligence work (including on-orbit servicing). The acquisition also reduces MDA's dependence on Canadian Government funding.
The analyst expects the acquisition to be immediately accretive, with her 2013 EPS increasing to $6.22. Based on a 7.5 times EV/EBITDA multiple and a discounted cash flow (DCF) blend, her price target on MDA rises to $66.
MDA is trading down 0.87% at $56.75 on Thursday.