Orbital ATK: From NASA to the Navy

08/31/2015 8:00 am EST

Focus: STOCKS

John Eade

President and Senior Analyst, Argus Research Group

Our latest featured buy recommendation is a new company created through the combination of Orbital Sciences and the Aerospace and Defense Groups of Alliant Techsystems, notes John Eade of Argus Research.

Orbital ATK (OA) supplies advanced defense, aviation, and space systems to the US government, its allies, and prime contractors.

The company’s main products include launch vehicles and propulsion systems, composite aerospace structures, tactical missiles, defense electronics, precision weapons, and ammunition.

Orbital ATK is the largest US producer of small-caliber ammunition. The company’s earnings trajectory is promising relative to the peer group and valuations appear attractive.

The company’s newest bookings consisted of $965 million in new orders, $395 million in new options, and $810 million in exercised options.

Flight Systems recorded $415 million in new orders, driven by the extension of Airbus A350 aero structures and new space launch vehicles.

The Defense Systems segment brought in $435 million in new orders, including an Aerial Target Vehicle program for the US Navy.

Lastly, the Space Systems business booked $510 million in new business, including two space station cargo delivery missions for NASA.

Based on current bookings and margin trends, as well as management’s guidance, we are raising our adjusted pro forma 2015 EPS estimate to $4.80 from $4.58 and our 2016 forecast to $5.50 from $5.40. Our long-term EPS growth rate forecast is 13%.

Like its peers in the Aerospace and Defense industry, Orbital ATK faces the risk of contract cancellations and program cutbacks due to reductions in US government spending.

In the most recent fiscal year, the company derived 75% of its sales from US government contracts, primarily from the Army, Navy, and NASA. The Aerospace and Defense industries are inherently risky.

We think that Orbital ATK shares are attractively valued. Our target price of $95 assumes a P/E ratio of 17.3-times next year’s earnings, close to the industry average.

Subscribe to Argus Research here…

More from MoneyShow.com:

Aerospace ETF: Set for Flight

Northrop: Defensive Play in Defense

Boeing: Rare Short Opportunity

Related Articles on STOCKS

Keyword Image
11 Reasons to Buy Microsoft
12/11/2017 5:00 am EST

For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...

Keyword Image
A Trio of Top-Tier Biotechs
12/11/2017 5:00 am EST

We hold three biotech stocks in our growth portfolio — Biogen (BIIB), Bioverativ (BIVV), and R...

Keyword Image
Saudis, Oil and ETFs
12/11/2017 5:00 am EST

Under the guise of clamping down on “widespread corruption,” Prince Mohammed bin Salman ...