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The rise of the space economy is one of the biggest investment trends of our lifetime.

It sports massive gross potential that will soon expand from hundreds of billions of dollars to trillions.

And one the best ways for investors to profit is with Maxar Technologies (NYSE: MAXR) — a world-leading satellite manufacturer and one of a precious few pure-play space stocks on the market.

Of course, you don’t have to take my word for it...

I’ll prove it.

TO INFINITY AND BEYOND

As we all learn in elementary school, the universe is infinite and constantly expanding.

In a way, that’s true of its investing potential as well.

Mankind is obsessed with exploration. New frontiers are nothing but another challenge to be conquered.

First, we put a man into orbit; then we put one on the moon. Next we’ll put one on Mars.

And what comes after that?

At what point will we say enough is enough and stop exploring the infinite fathoms of space and its planetary wonders?

The answer, of course, is never.

We will forever be in search of new technologies capable of carrying us deeper and deeper into the abyss.

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More than that, we’ll continue to seek out new technologies capable of colonizing the last great frontier territory.

And we will, naturally, monetize it as well.

Space tourism, asteroid mining, a space station on the moon... These aren’t just science fiction. They’re real projects that are already attracting the world’s brightest minds.

And they’re going to result in a fantastic amount of growth.

As it currently stands, the total value of the space economy is roughly $366 billion.

Here’s a snapshot of how that breaks down.

However, UBS projects that this level of spending will more than double in the next 10 years, to $805 billion, and triple in the next two decades to more than $1 trillion.

Morgan Stanley has a similar projection, based on an expected surge in internet and broadband development:

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No doubt, things like high-speed commercial travel, space tourism, asteroid mining, and even colonization will factor in eventually.

But in the immediate term, the main driver of growth in the space sector is something far more fundamental: satellites.

You see, in recent years, satellites have become smaller, cheaper, and easier to make with commercial off-the-shelf parts. Some even weigh less than an ounce. This means more people can afford to send them into orbit.

And that’s just what they’re doing.

Since the Soviet Union first launched Sputnik into orbit back in 1957, some 8,378 satellites have been launched into outer space.

But according to Euroconsult, 8,500 satellites will be launched from 2019–2028.

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To be clear, that means we’ll see more satellite launches in the current decade than we saw in the 60-plus years prior.

Indeed, an average of 133 satellites were launched annually over that initial 63-year period. But 955 satellites were launched in 2020 alone.

In fact, in January 2021, SpaceX deployed 143 satellites on a single rocket.

With this vast increase in launch activity, there could be more than 12,000 satellites in orbit by 2028 — up from roughly 3,000 now.

So if we zoom in, the small satellite market by itself totaled a little more than $3 billion in 2019, according to Fortune Business Insights, which further estimates that market will grow to $9.75 billion by 2027.

That’s a CAGR of 19%.

It should come as no surprise then, that while scouring the space sector for potential profit plays, I landed on a satellite manufacturer in Maxar Technologies.

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SPACE INFRASTRUCTURE

Now, to be clear, I’m calling Maxar a satellite company, but that’s an oversimplification.

In truth, Maxar’s business is two-pronged.

The first business segment produces satellites and other hardware (Space Infrastructure).

The second sells information and data (Earth Intelligence).

So let’s take a look at each, starting with the hardware.

The Space Infrastructure segment includes:

• Communications and Earth orbit satellites

• Space exploration and spacecraft

• Solar electric propulsion

• On-orbit satellite servicing vehicles

• And robotics for ongoing space operations

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Maxar has been working in this space for 60 years now and has 90 geostationary satellites currently in service.

They fall into the following categories:

• Earth observation, which includes spy satellites.

• Direct broadcast, which means television.

• Two-way broadband, which is internet service.

• Digital audio radio, like Sirius XM.

• Digital multimedia, which includes streaming and GPS navigation.

• And meteorological, for weather.

In those capacities, the Maxar 1300 is the workhorse. Tried and true, it’s the world’s most popular spacecraft platform.

It’s undergone multiple revisions since first being released in the 1980s, making it scalable and cost-effective.

It was the first satellite to use a 100-volt bus and Direct Radiating Collector (DRC) amplifiers, which generated the higher power needed for direct-to-home television.

It was the first satellite to reach 20kW of power, enabling satellite broadcast of today’s HD and UltraHD television.

It was the first true high-throughput satellite, connecting millions of people around the world to high-speed broadband.

And it’s currently supporting the planet’s two highest-capacity broadband satellites.

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Furthermore, as part of NASA’s Artemis program, Maxar is building the Power and Propulsion Element (PPE) for the Lunar Gateway that will put the first woman on the moon.

The PPE for the lunar Gateway will serve as an orbiting command module, supporting human missions in space. Developed on the company’s 1300 platform, it will provide power, thrust, and critical communications, as well as robotics, for ongoing space operations and exploration.

Maxar has also finalized a contract with NASA to deliver a robotic arm called Sample Acquisition, Morphology Filtering and Probing of Lunar Regolith (SAMPLR) for $5 million.

The arm will be used to explore Earth’s moon by acquiring samples and determining the geotechnical properties of lunar regolith (the layer of unconsolidated rocky material that covers bedrock).

Maxar will provide a complete robotic system including all avionics, mechanical systems, and operational support while on the lunar surface.

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Maxar is also providing the spacecraft and three robotic arms for NASA’s OSAM-1 mission to refuel and service a low-Earth orbit satellite and demonstrate on-orbit assembly.

In that case, OSAM-1, fitted with Maxar’s Space Infrastructure Dexterous Robot (SPIDER) arm, will refuel and relocate a satellite on-orbit, showing it can manipulate and refuel satellites that were not originally designed for servicing.

That demonstration could show how commercial satellites and telescopes could carry fixtures currently too large to fit inside rocket payload fairings. Effectively, it could mean a future where satellites and other space infrastructure are carried into orbit piecemeal and assembled in space.

The company has built six robotic arms for Mars landers and rovers, as well, including one for the recently landed Perseverance rover.

And finally, a Maxar spacecraft will assist in NASA’s mission to explore 16 Psyche, an asteroid believed to be made of metal. That mission could offer new insight into how the Earth was formed.

All of this is to say that Maxar is one of the world’s most trusted space partners. It’s worked for decades alongside NASA and commercial enterprises on billions of dollars’ worth of space infrastructure.

And with demand for greater space infrastructure poised to soar, its revenue should continue to grow.

However, despite that growth, the second part of Maxar’s business — Earth Intelligence — is actually even more profitable.

Take a look...

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EARTH INTELLIGENCE

The biggest thing Maxar has going for it is that it owns and operates the world’s most sophisticated constellation of Earth imaging satellites.

The network is called Worldview and it provides an unparalleled cache of data — both historical and real-time — to which it can sell access.

The constellation covers 60% of Earth’s surface monthly and collects more than one million square miles per day.

Furthermore, Maxar saves that information in a massive database that includes information gleaned from its retired satellites. This serves as a digital time machine that allows customers to follow changes through an archive that goes back more than 20 years.

Such data is of keen interest to both corporations and governments, which use it to spy, inform, map, guide, plan, track, and coordinate.

Specific examples include GPS mapping or navigation software for automobiles and boats, coordinating disaster response, tracking weather systems, city planning, and ocean monitoring.

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Then there’s national security and defense.

Maxar’s satellite images are used to position troops, identify potential targets, guide weapons, surveil enemies, and even evaluate helicopter landing sites.

We’re not just talking about pictures, either.

Maxar’s satellites are sophisticated enough to provide 3D mapping to enhance situational awareness and radar imaging to peer through clouds or darkness.

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These representations can be used for all kinds of things.

They can help city planners and cable/internet providers design and lay out infrastructure. They can help architects and engineers scout potential building sites. And they can offer crucial environmental awareness for the military, including battlefield visualizations, troop positioning, and line-of-sight/concealment analysis.

It should come as no surprise, then, that the U.S. government is Maxar’s biggest customer.

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Beyond that, Maxar’s SeaStar Information Service delivers ocean intelligence derived from imagery, global ocean models, and satellite tracking systems. This helps protect aquaculture assets and identify potential instances of illegal fishing.

And its WeatherDesk offers historical, observed, and forecasted climate/weather information, as well as immediate risk assessment through web applications and data services.

That’s a lot of information — and it’s information that is always changing and evolving, meaning the need for updates is constant.

This provides Maxar with a steady supply of recurring revenue as it charges customers to maintain access.

And it almost goes without saying, but providing this data at cost has much higher margins than, say, building a multimillion-dollar satellite.

That’s why Maxar’s Earth Intelligence unit has the edge over Space Infrastructure in revenue.

But let’s not stop there.

Let’s take a deeper dive into the company’s financials...

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MONEY AND MANAGEMENT

Financially, Maxar is something of a turnaround play, which explains why it doesn’t carry the same lofty premiums other space companies might.

In 2019, burdened by debt and plagued by mishaps, then-CEO Howard Lance resigned and was replaced by Daniel Jablonsky, who had previously served as president of the company’s DigitalGlobe division.

Jablonsky then set about unwinding the ball of yarn Maxar had become.

In December 2019 the company announced the sale of its Canadian space robotics business — MacDonald, Dettwiler and Associates (MDA) — to a consortium led by Northern Private Capital for $765 million.

That move, completed in April of last year, was transformational.

At the time, $765 million equated to roughly 80% of Maxar’s market cap. Yet as a business, MDA only accounted for one-fifth of Maxar’s annual revenue.

So the company effectively shed weight, and in the process received a cash boon that was used to help pay off the massive debt it had previously accumulated.

Some of that debt still remains, of course, as the company had $2.5 billion of long debt at the end of 2020. But that’s down from $3 billion a year earlier.

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Better still, Maxar’s annual revenue rose 4.2% to $1.723 billion from $1.666 billion in 2019. And net income nearly tripled, climbing to $303 million from $109 million in 2019, and a loss of $1.25 billion in 2018.

Adjusted EBITDA was $422 million for the year, up from $416 million in 2019.

Maxar also grew its backlog by 17% to $1.9 billion. And the company anticipates continued growth in revenue, adjusted EBITDA, and free cash flow in 2021.

“Importantly, we have also increased our 2023 targets to better reflect the earnings and cash generation power we see ahead,” said Chief Financial Officer Biggs Porter.

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In sum, Maxar has had its struggles in the past, but it’s regained its footing and is now headed in the right direction.

Revenue, earnings, and cash flow are all improving, which bodes well for the future.

Some of the results have already been factored into the stock’s share price, which has surged from less than $5 per share at its lowest point in 2019 to a high of $51 earlier this year.

Currently, however, it’s trading in the mid-$30s, which is where I think it’s a buy.

As I said, this is one of a precious few pure space plays out there, and it’s set to gain steam as interest in the sector heats up. Barring any setbacks it should return to its pre-crisis peak of roughly $70 per share within a year or two.

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That’s why I’m adding it to our portfolio.

Buy Maxar Technologies (NYSE: MAXR) for under $40 per share.

Fight on,

Jason Simpkins

Editor, Wall Street’s Proving Ground

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