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Alliant Techsystems Inc. (ATK - Analyst Report) has entered into an agreement, worth $17 million, with the U.S. Air Force (USAF) to manufacture rocket motors for the AIM-9P sidewinder. The company’s Missile Products division under its Defense Group will be responsible for this contract. Alliant will supply these rocket motors from its Allegany Ballistics Laboratory in Rocket Center, West Virginia.

This contract is under the U.S. Foreign Military Sales (FMS) program. Under the FMS, the U.S. government acquires defense items and services on behalf of international customers.

The rocket motors are installed to power the AIM-9P sidewinder missile - a short-range, infrared air-to-air missile system. The AIM-9P sidewinder is a part of the AIM-9 sidewinder missile family and its main objective is to defuse high-performance enemy aircraft under all weather conditions. Apart from the USAF and U.S. Navy, the company also supplied these missiles to the North Atlantic Treaty Organization (NATO) countries and other U.S. allies under the FMS.

These rocket motors’ proven track record enables Alliant to become the trusted supplier for national as well as international government agencies.

Earnings Recap

Alliant reported third quarter fiscal 2013 pro forma earnings of $1.84 per share, beating the Zacks Consensus Estimate of $1.70 by 8.2%. However, quarterly results were lower than the year-ago earnings of $2.03 per share. The company’s total revenue of $1,056.2 million surpassed the Zacks Consensus Estimate by $52.2 million but decreased 5.5% year over year.

Our Take

As Alliant has an existing set-up to manufacture these kinds of motor rockets, the company can leverage its operational position with no fresh investments for infrastructure development, leading to improved margins.

Alliant’s two biggest clients are the National Aeronautics and Space Administration and the U.S. Department of Defense. So, any cutback in the U.S. defense budget could limit the company’s future growth prospects.

In this circumstance, we consider such an international, small ticket-size contract as a finance-booster for Alliant. It will enable the company to further strengthen its ongoing strategic alliance with its international clients.

Arlington, Virginia-based Alliant Techsystems Inc. provides aerospace and defense products to the U.S. government agencies. The company and other players in the domain CAE Inc. (CAE - Snapshot Report), Esterline Technologies Corporation (ESL - Snapshot Report) and Hexcel Corporation (HXL - Snapshot Report) currently have a Zacks Rank #2 (Buy).

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