Boom: Ammunition and Explosives

02/04/2014 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

In Upside Stocks, a quantitative service focused on small- and mid-cap stocks, Richard Moroney highlights two "explosive" ideas, a maker of charges and detonators, and an ammunitions firm.

Upside's stock-rating system, Quadrix, considers more than 90 variables in seven categories—Momentum, Quality, Value, Financial Strength, Earnings Estimates, Performance, and Volume Metrics.

Alliant Techsystems (ATK) is a leading producer of ammunition used by the US military, law-enforcement agencies, and sport enthusiasts. The company also makes rocket motors used for missile defense and space launches.

Finally, Alliant sells specialized components used in commercial and military aircraft. Acquisitions have helped diversify sales and sustain growth. On November 1, Alliant purchased Bushnell—a leading maker of optics for shooting sports and outdoor activities.

Profit estimates are on the rise, reflecting a strong September quarter, contributions from acquisitions, and favorable margin trends.

Per-share earnings from operations were $2.86 for the September quarter, up 43% and above the consensus of $2.39. Gross profit margin rose to 26.5% from 24%.

For fiscal 2014 ending March, Wall Street targets per-share earnings of $9.38, up 12%, on revenue growth of 8%. For fiscal 2015, the per-share consensus is $10.45. Alliant, with an Overall score of 90, is being initiated as a Buy.

Dynamic Materials (BOOM) is the world's largest maker of explosion-welded metal plates, which are used in industrial, infrastructure, and energy applications.

The company also sells explosive charges and detonators used in the recovery of petroleum from oil and gas wells. Dynamic Materials is benefiting from a US resurgence in oil production and a renewed focus on chemical processing capacity. Notable customers include Exxon, Chevron, and Dow Chemical.

The stock earns an Overall score of 91, reflecting above-average scores in all six categories. For 2013, the consensus calls for per-share earnings of $0.93, implying 7% growth.

For 2014, analysts target per-share profits of $1.39, up 50%. Yet shares trade at a reasonable 16 times projected 2014 profits. Dynamic Materials, capable of climbing 20% in the year ahead, is being initiated as a Buy.

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