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Orbital ATK (OA) Wins $123M Contract From the U.S. Army

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Orbital ATK, Inc. announced that the company has been awarded a $123-million order for the Precision Guidance Kit (PGK) by the U.S. Army. This order is a part of under-production contract Option 2, per which the company will keep supplying the Guidance Kits to the warfighter. In July 2016, the company signed a $69-million deal for the supply of the same.

About Precision Guidance Kit

Orbital ATK’s innovative designs have enhanced the Precision Guidance Kit. It is a combination of guidance and fuze function for conventional 155mm artillery projectiles. The end result is an affordable, GPS-guided device that provides the warfighter necessary precision and reduces collateral damage while engaging high-value targets.

Why Orbital ATK?

Orbital ATK is one of the trusted contractors for the U.S. Department of Defense. Its current research and development (R&D) work is not only churning new products but has further expanded its defense and commercial market penetration. The company’s estimated R&D expenses in 2017 are expected to be $135 million. Orbital ATK is involved in more than 100 major development and production programs which assure a continuous source of revenues and inflow of new contracts.

Owing to all the above mentioned factors, the company receives regular orders from different verticals of the U.S. Defense. As of Jul 2, 2017 Orbital ATK’s total backlog rose almost 4% year on year to nearly $15.4 billion, whereas its firm backlog increased approximately 10% to $9.5 billion.

Acquisition by Northrop Grumman

Northrop Grumman Corporation (NOC - Free Report) confirmed that it has negotiated a deal with Orbital ATK, to acquire the latter for $9.2 billion, subject to all regulatory approvals. Of the total amount, the former will pay approximately $7.8 billion in cash and the assumption of $1.4 billion in net debt. This acquisition is expected to give Northrop a strategic advantage over its archrival, The Boeing Company (BA - Free Report) .

On completion of the deal, Northrop Grumman wants to setup Orbital ATK as a new and fourth business unit. With the acquisition of Orbital ATK, Northrop Grumman will benefit from the former's rocket motors, missiles and electro-optical countermeasure product lines. (Read More: Northrop Grumman Announces Orbital ATK Buyout for $9.2B)

Expansion through acquisition is not new in the defense industry. Earlier this month, United Technologies Corp (UTX - Free Report) finalized the deal to acquire Rockwell Collins Inc for $30 billion. With rise in terrorism across the globe and the mounting tension between North Korea and United States, major defense companies are preparing themselves for extensive orders that are expected to pour in from Pentagon due to the recent defense policy bill. Recently, the U.S. Senate passed fiscal 2018 defense policy bill worth $696.5 billion, which was proposed in July 2017.

Price Movement

Shares of Orbital ATK have returned 31.3%, compared with the industry’s gain of 14.3% in the last six months.

The company’s performance is expected to be driven by diverse product offerings and rising backlog.

Zacks Rank

Orbital ATK currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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