Firefly Aerospace just doubled in size at a very good price.
Firefly Aerospace (FLY 6.69%) stock soared a lucky 7.7% through 11:20 a.m. ET Monday after the space stock announced, over the weekend, that it will purchase defense contractor SciTec for $855 million.
Firefly will pay $300 million in cash and hand over $555 million worth of stock at a $50-per-share valuation to acquire SciTec.
Image source: Getty Images.
Why buy Firefly?
It’s curious that SciTec would agree to value Firefly stock at $50 a share when the stock closed closer to $27 a share last week. Then again, it’s possible the parties negotiated the valuation weeks ago, when Firefly stock was worth a bit more.
Whatever SciTec’s reasoning, Firefly’s logic behind buying SciTec is clear: “The transaction aims to fuse Firefly’s launch, lunar, and on-orbit services with SciTec’s mission software, rapid data processing, and low-latency AI systems that support missile warning, tracking, and multi-domain operations.”
SciTec is a specialist in missile warning and defense. It’s also a company with $164 million in trailing-12-month revenue. Over that same period, Firefly itself collected less than $103 million in revenue.
In other words, by buying SciTec, Firefly will more than double its annual revenue stream and expand its own role in defense contracting.
Is Firefly Aerospace stock a buy?
In terms of valuation as well, this deal sounds like a win for Firefly. For one thing, Firefly somehow convinced SciTec to value its stock nearly twice as high as everyone else on the stock market does!
For another, paying $855 million to capture a $164 million revenue stream means Firefly will pay a price-to-sales ratio of only 5.2 for SciTec. Compared to Firefly’s own sales valuation of 42, that’s a steal of a deal.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.