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Alliant Techsystems Inc. (ATK - Analyst Report) has received a 5-year Indefinite Delivery/Indefinite Quantity (“IDIQ”) contract, worth maximum $84.1 million, from the U.S. Army Contracting Command to provide the MK 437 Multi-Option Fuze, Navy (“MOFN”). The agreement authorizes initial funding of roughly $13 million.  

Per the agreement, the company will roll-out the deliveries from its Allegheny Ballistics Laboratory (“ABL”) facility in Rocket Center at West Virginia. Though ABL is operated by Alliant, this operation is owned by the U.S. Navy and specializes in advanced manufacturing technologies for a variety of programs. The supply is expected to start from November 2013.  

Alliant produces fuze to explode a wide range of military ammunitions like artillery rounds, mortar bullets and medium-caliber ammunitions. The company’s key fuze products include the MOFN and the Multi-Option Fuze for Artillery. MOFN provides point-detonation, electronic time, autonomous modes, height-of-burst and air (proximity).

Multi-Option Fuze, Navy increases overall mission capability of 5-inch gun ammunitions, including 5″/54, 5″62, used on U.S. Navy ships to offer closeness, accurate time, delay and point detonating impact functions in a single fuze. MOFN is expected to utilize on projectiles fired in the MK 45 Single Lightweight Gun Mount on the U.S. Navy vessels.

Alliant’s two biggest clients are the U.S. Department of Defense and the National Aeronautics and Space Administration. We believe that the U.S. defense budget cutbacks could limit the company’s future growth prospects. In addition, higher degree of competition from a number of players in each of its business areas is also our major concern.

However, we expect the negatives to be partially mitigated by improvement in the company’s Aerospace segment, which will in turn, contribute significantly to its future profitability.

Considering positive and negative factors, we prefer Alliant Techsystems to have a short-term Zacks #2 Rank (Buy rating). One of its peers Rockwell Collins Inc. (COL - Analyst Report) has short-term Zacks #3 Rank (Hold rating).

Arlington, Virginia-based Alliant Techsystems Inc. provides aerospace and defense products to the U.S. government agencies. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers. With a market capitalization of $2.03 billion, Alliant has 17,000 full time employees.

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