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Alliant Techsystems Inc. (ATK - Analyst Report) has entered into a Fixed Price Indefinite Delivery/Indefinite Quantity (“IDIQ”) agreement with the Department of Justice (“DOJ”) and Federal Bureau of Investigation (“FBI”) to deliver .40 caliber ammunition. This contract has a customary one-year base period, includes four one-year extension options and has a maximum value of $75 million. Alliant’s Sporting Group will be responsible for this contract.

Per the agreement, the company will provide duty and training ammunitions to two federal bodies from its Speer facility in Lewiston, Idaho. The supply is expected to start from December 2013.  

The .40 caliber Speer's Gold Dot Duty ammunitions have exceptional weight preservation and dependable feeding capacity as well as excellent terminal performance. In addition, it offers standard training ammunition and a reduced hazard option (“RHT”). The Speer RHT round has a frangible projectile, which dissolves on contact. This ammunition is ideal for indoor-training purposes.

These bullets’ proven track record enables it to become trusted supplier of pistol ammunitions for several national as well as international government agencies. Earlier, in March 2012, Alliant received an IDIQ contract from the Department of Homeland Security (“DHS”) and the U.S. Immigration and Customs Enforcement (“ICE”) to deliver .40 caliber ammunitions.  

In the second quarter of fiscal 2013, Alliant’s Sporting segment reported sales of $275 million, up 11% year-over-year from $249 million. Rise in sales was primarily due to higher volume in both the ammunition and accessories divisions.

We consider these types of small ticket-size contracts as daily-finance-booster for Alliant and will enable the company to further strengthen its ongoing strategic alliance with the different government organizations.

However, we believe that the U.S. defense budget cutbacks could limit the company’s future growth prospects. In addition, a higher degree of competition from a number of players in each of its business segments is also a concern.

We expect the negatives to be partially eased by development in Alliant’s Aerospace segment, which in turn will contribute considerably 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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