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Defense and aerospace supplier Alliant Techsystems Inc. (ATK - Analyst Report) has been awarded an engineering and manufacturing contract to develop a precision grenade launcher called the XM25 Individual Semi-Automatic Airburst System.

The contract, awarded by the U.S. Army’s Program Executive Office (PEO), is worth $65.8 million.

The contract that extends over a span of 30 months entails continued development and testing of XM25’s full-up systems to arrive at a design that meets performance requirements before it goes into full production and eventually on the field.

The XM25 consists of a rifle that fires a 25mm, laser-guided, airbursting grenade that is programmed to explode directly above an intended target. The weapon's integrated target acquisition and fire control system enables it to of hit targets around corners or inside buildings.

The XM25 provides the soldier on the ground a precision weapon to quickly and accurately engage targets by displaying an adjusted aim point based on range, environmental factors and user inputs. Alliant says a soldier using basic rifle marksmanship skills can effectively engage targets in less than five seconds, with this weapon, while also reducing the chances for collateral damage. These capabilities allow for the use of this weapon in the day and at night as well as under all weather conditions.

Alliant Techsystems is the prime contractor and systems integrator for the XM25 program. The company has the program management headquarters at its Advanced Weapons Division in Plymouth, Minnesota. Other partners in the program include Heckler & Koch in Sterling, Virginia and L-3 Brashear in Pittsburgh, Pennsylvania.

The Army is currently conducting a forward operational assessment with XM25 prototype weapons deployed in Afghanistan.  This effort began in November 2010. Soldier feedback from this assessment will assist future decisions regarding budget, tactics, basis of issue and improvements soldiers want to see in the weapon's fielded version.

Minneapolis, Minnesota-based Alliant Techsystems is a premier aerospace, defense and commercial products company with operations in 24 states, Puerto Rico, and internationally. Its annual revenues are approximately $4.8 billion. The company supplies to the U.S. government agencies, and its prime contractors and sub-contractors. It also supplies ammunition and related accessories to law enforcement agencies and commercial customers.

We retain our long-term Neutral recommendation on the stock. Also, Alliant currently has a short-term Zacks #3 Rank (Hold), which is in line with its closest peers General Dynamics Corp. (GD - Analyst Report) and Raytheon Co. (RTN - Analyst Report).

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