Buy This Space Stock and Outperform Jeff Bezos and Elon Musk

Magellan Aerospace Corporation (TSX:MAL) is a great Canadian aerospace company. Jeff Bezos and Elon Musk are making big investments in the space industry. Does the stock present an under-the-radar opportunity for Canadian value investors?

| More on:

Magellan Aerospace Corporation (TSX:MAL) produces aeroengines and aerostructure assemblies for space markets in North America, Europe, and Asia.

The company was incorporated in 1994 and corporate headquarters is in Mississauga, Canada. The company sells aero=engine products, including engine frames, compressor and fan cases, turbine cases, shafts, rotor spools, discs and blisks, gearbox housings, combustion liners and cases, exhaust frames and systems, engine bypass ducts and frames, acoustically treated exhaust systems and fan cowl doors.

The company is underpriced with a price-to-earnings ratio of 10.64, a price to book ratio of 1.21 and market capitalization of 961 million. Debt is very sparingly used at Magellan Aerospace, as evidenced by a debt to equity ratio of just 0.11. The company has average performance metrics with an operating margin of 10.78% and a return on equity of 11.73%.

The company supports the aftermarket through the supply of spare parts as well as through repair and overhaul services (R&O). The company began a focused effort in 2018 to establish a zero defect, 100% schedule compliance culture across the firm.

In parallel, there was a big emphasis on reducing inventories while increasing inventory turns and improving cash management. The company also invested in a new Enterprise Resource Planning (ERP) system to transform the business.

The company supplies both the commercial and defence sectors of the Aerospace segment. In the commercial sector, the company operates in the large commercial jet, business jet, regional aircraft, and helicopter markets.

On the defence side, the company provides parts and services for major military aircrafts. Within the Aerospace segment, the company has two major product groupings: aerostructures and aeroengines. Aerostructure and aeroengine products are used both in new aircrafts and for spare parts.

Within the aerostructures product grouping, the company supplies international customers by producing components to aerospace tolerances using conventional and high-speed automated solutions. Capabilities include precision casting of air frame mounted components.

Management believes that Magellan need to focus on technological innovation and low cost sourcing from emerging markets so the company is appropriately positioned to gain market share.

Within the aeroengines product grouping, the company manufactures complex castings, fabricated and machined gas turbine engine components, both static and rotating, integrated nacelle components, flow path and engine exhaust systems for the world’s leading aeroengine manufacturers. The company also performs R&O services for jet engines and related components.

Last year, 69% of revenues were derived from commercial markets (2017–73%, 2016–73%) while 31% of revenues related to defence markets (2017–27%, 2016–27%). The company reported revenue in most recent quarter of $270 million, a $25.3 million increase year over year. Gross profit and net income were $43 million and $21 million, respectively.

The company has also been actively pursuing partnerships to further business interests. Magellan recently announced agreements valued at $48 million with the Canadian government to perform the licensed manufacture of LUU-2 Illumination flares for the Royal Canadian Air Force.

Magellan also recently announced it has reached a multi-year agreement with The Boeing Company to manufacture 777X ribs and Magellan will provide internal dual source capability for risk control.

Magellan appears to be an under the radar opportunity for Canadian value investors looking for exposure to the global aerospace industry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

More on Investing

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »