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Orbital ATK (OA) Gains from Robust Backlog, Competition Rife
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On Aug 23, 2016, we issued an updated research report on Orbital ATK, Inc. . This aerospace and defense company’s wide array of product offering, robust backlog and merger synergies provide ample tailwinds. However, intensifying competition in the defense space and volatile commodity prices could restrict its growth.
In the second quarter of 2016, Orbital ATK’s adjusted earnings of $1.35 per share beat the Zacks Consensus Estimate by 3.8% and surged 37.8% from the year-ago tally. However, its total revenue came in at $1,052 million, lagging the Zacks Consensus Estimate of $1,136 million by 7.4% and down 2.6% from the year-ago figure. The decline was primarily due to lower sales at Flight Systems and Space Systems, partially offset by higher contribution from the Defense Systems Group.
Merger synergies continue to be key driver of Orbital ATK’s performance. The company realized cost savings of $85 million in 2015 and is on track to save over $100 million in 2016. In addition, it generated $75 million in incremental revenues in 2015 and expects to rake in over $150 million in 2016, primarily from Space Systems and Flight Systems.
Thanks to its diverse product offering, Orbital ATK continues to win a steady stream of contracts from its wide customer base. The company exited the second quarter with a total backlog of $15.17 billion (up 25% year over year), out of which firm backlog constituted $8.48 billion (up 1%). The current backlog level provides excellent visibility into near-term top-line expansion —95% of the targeted 2016 revenue, 70% of the targeted 2017 revenue and 40% of the targeted 2018 revenue.
However, defense is a highly competitive sector, which is evolving rapidly. If Orbital ATK fails to continue bringing increasingly innovative products that meet changing needs, train existing employees to work with modern technologies, and retain qualified professionals, the company will be unable to compete with its peers.
Moreover, Orbital ATK utilizes a variety of raw materials such as steel, copper, zinc, aluminum, natural and synthetic rubber compounds, acrylonitrile, ammonium perchlorate and other substances to manufacture end products. Increasing price of raw materials, disruptions in supply and delay in the replacement of materials could have an adverse impact on the company’s results, going forward.
Zacks Rank & Key Picks
Orbital ATK currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense industry are Aerojet Rocketdyne Holdings, Inc. , KLX Inc. and Kratos Defense & Security Solutions, Inc. (KTOS - Free Report) . Each of these stocks currently carries a Zacks Rank #2 (Buy).
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Orbital ATK (OA) Gains from Robust Backlog, Competition Rife
On Aug 23, 2016, we issued an updated research report on Orbital ATK, Inc. . This aerospace and defense company’s wide array of product offering, robust backlog and merger synergies provide ample tailwinds. However, intensifying competition in the defense space and volatile commodity prices could restrict its growth.
In the second quarter of 2016, Orbital ATK’s adjusted earnings of $1.35 per share beat the Zacks Consensus Estimate by 3.8% and surged 37.8% from the year-ago tally. However, its total revenue came in at $1,052 million, lagging the Zacks Consensus Estimate of $1,136 million by 7.4% and down 2.6% from the year-ago figure. The decline was primarily due to lower sales at Flight Systems and Space Systems, partially offset by higher contribution from the Defense Systems Group.
Merger synergies continue to be key driver of Orbital ATK’s performance. The company realized cost savings of $85 million in 2015 and is on track to save over $100 million in 2016. In addition, it generated $75 million in incremental revenues in 2015 and expects to rake in over $150 million in 2016, primarily from Space Systems and Flight Systems.
Thanks to its diverse product offering, Orbital ATK continues to win a steady stream of contracts from its wide customer base. The company exited the second quarter with a total backlog of $15.17 billion (up 25% year over year), out of which firm backlog constituted $8.48 billion (up 1%). The current backlog level provides excellent visibility into near-term top-line expansion —95% of the targeted 2016 revenue, 70% of the targeted 2017 revenue and 40% of the targeted 2018 revenue.
ORBITAL ATK INC Price
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However, defense is a highly competitive sector, which is evolving rapidly. If Orbital ATK fails to continue bringing increasingly innovative products that meet changing needs, train existing employees to work with modern technologies, and retain qualified professionals, the company will be unable to compete with its peers.
Moreover, Orbital ATK utilizes a variety of raw materials such as steel, copper, zinc, aluminum, natural and synthetic rubber compounds, acrylonitrile, ammonium perchlorate and other substances to manufacture end products. Increasing price of raw materials, disruptions in supply and delay in the replacement of materials could have an adverse impact on the company’s results, going forward.
Zacks Rank & Key Picks
Orbital ATK currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense industry are Aerojet Rocketdyne Holdings, Inc. , KLX Inc. and Kratos Defense & Security Solutions, Inc. (KTOS - Free Report) . Each of these stocks currently carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>