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Alliant Techsystems Inc. (ATK - Analyst Report) has entered into a firm-fixed price five-year Indefinite Delivery/Indefinite Quantity (IDIQ) contract with the U.S. Navy to deliver 30mm x 173mm, MK266 High Explosive Incendiary with Trace Cartridges in MK15 Linked Belts. The agreement authorizes the initial funding of roughly $12 million and has the maximum potential value of $41 million. Alliant’s Defense Group will be responsible for this contract.

Per the agreement, Alliant will provide 30mm x 173mm ammunitions to the U.S. Navy. The company will roll out the deliveries from its Allegheny Ballistics Laboratory facility in Rocket Center at W. Va. and New River Energetics facility in Radford, Va. The deliveries are expected to start from 2014 and will be over by 2018.

Alliant’s series of 30mm x 173mm ammunition provides cost-effective, anti-personnel, and armor-piercing training rounds for improved war-fighter performance. In addition, these ammunitions offer exceptional accuracy, lethality and necessary penetration to overcome the threats on the battlefield. The MK266 is an alteration to the PGU-13 High Explosive Incendiary 30mm round along with the addition of a tracer. It is installed at the MK46 Mod 2 Gun Weapon System of the U.S. Navy's San Antonio class Landing Platform Dock ships and Littoral Combat Ships.

Alliant plays a significant role to meet the U.S. defense establishment’s demand for the small and medium caliber ammunitions. Till date, the company has supplied roughly 200 million rounds of 30 mm GAU-8 ammunitions to the armed forces.

In December last year, the company had received a similar kind of IDIQ contract, worth $75 million, from Department of Justice and Federal Bureau of Investigation to deliver .40 caliber ammunitions.

We consider these kinds of small ticket-size deals further strengthen Alliant’s ongoing alliance with different government organizations.

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

Considering positive and negative factors, we prefer Alliant Techsystems Inc. to have a Zacks Rank #2 (Buy). Other stocks from the industry we presently prefer are Zacks Ranked #1 (Strong Buy) Ducommun Inc. (DCO - Snapshot Report), and Rockwell Collins Inc. (COL - Analyst Report) and Hexcel Corporation (HXL - Snapshot Report) with Zacks Rank #2 (Buy).

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.

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