What happened
Shares of Telesat (NASDAQ: TSAT) exploded 50.2% higher as of 10:45 a.m. ET on Friday after the tiny satellite communications company reported its financial results for the second quarter. But Telesat stock didn't jump just because of those results, it jumped because the company just found $2 billion under the couch cushions.
Telesat reported $179.8 million in Canadian dollars ($134 million) in revenue for the second quarter, down 4% year over year. Earnings, on the other hand, flipped from a US$3.3 million loss a year ago to a $387.5 million profit.
That's $7.50 per share in profit for a stock that cost barely $8 before earnings came out.
So what
So how did Telesat manage that? Well, the profits came from compensation that it received for clearing C-band communications channels for 5G mobile traffic.
The money it received for this service was a nice chunk of change. But as CEO Dan Goldberg said, "Certainly the biggest development so far this year is our separate announcement this morning that we have selected MDA(OTC: MDAL.F) to be the prime satellite contractor for Telesat Lightspeed." The company calls this planned project its "cutting-edge broadband satellite network" and "the largest space program ever conceived in Canada."
Under this new plan, fellow Canadian space company MDA will build 198 advanced satellites for Telesat Lightspeed. Not only will these new satellites be more efficient and slightly smaller (thus cheaper to launch) than the satellites Telesat had previously planned to buy from French aerospace company Thales(OTC: THLL.Y), they'll also cost about $2 billion less to build and buy.
Now what
Those cost savings are a pretty good reason for Telesat stock, which was worth roughly $400 million before this news broke, to be valued in excess of $600 million now that the savings are official.
It's not the end of the good news, either. With these savings in the bag, Telesat says that with the funding it expects to get from Canada's government, and the money it can acquire on its own and from vendor financing, it now has sufficient funds to cover the $3.5 billion cost to complete the Telesat Lightspeed program.
All systems now look green -- for Telesat and for its shareholders.
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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.
