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Orbital ATK (OA) Gains From Rising Backlog & Innovation

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On May 23, we issued an updated research report on Orbital ATK, Inc. . The company continues to gain from its wide range of high-quality products and consistent flow of orders. Orbital ATK reported first-quarter 2018 earnings of $1.76 per share beating the Zacks Consensus Estimate of $1.50 by 17.3%. Total revenues were $1,312 million, surpassing the Zacks Consensus Estimate of $1,134 million by 15.69%. Higher sales volumes from all three segments boosted its performance.

However, intense competition in the space and fluctuations in currencies are deterrents.

In a year’s time, Orbital ATK stock has gained 32.9% outperforming the 29.9% rally of its industry.

What’s Driving Orbital ATK?

Higher backlog is expected to drive the company’s performance. The new orders have boosted the company’s year-over-year contract backlog by 14% to $9.4 billion and total backlog by 12% to $16.6 billion.

The company continues to win a steady stream of contracts from its wide customer base, courtesy of a diverse product offering. Company’s total sales were divided among U.S. Government deals accounting for 75% and commercial & foreign customers accounting for 25%. Mix of domestic and foreign customers gives more stability to revenues and compensate for declines in orders in any particular area.

In the quarter, the company invested nearly $100 million for research & development activities and capital equipment. During the first quarter, Flight Systems conducted its fifth IRBM target launch from a C-17 aircraft and completed OmegA next-generation large-class launch vehicle. For commercial operators, Space Systems introduced its second-generation in-space satellite servicing technology.

However, defense is a highly competitive sector and Orbital ATK is required to offer high-quality products and services to retain and gain customers. In addition, foreign currency fluctuation and delay in supply in raw materials required by the company to fulfil orders could affect operations.

Acquisition News

Orbital ATK will be acquired by Northrop Grumman Corporation (NOC - Free Report) for $9.2 billion. Of the total amount, Northrop will pay approximately $7.8 billion in cash and the assumption of $1.4 billion in net debt. The companies expect the transaction to be closed by the first half of 2018. Post the announcement of this news, the shares of Orbital ATK have rallied significantly and presently trading near the acquisition price.

Rockwell Collins, Inc. (COL - Free Report) , another prominent operator in the same space, will be acquired by United Technologies Corporation (UTX - Free Report) . The transactions are expected close by the third quarter of 2018.

Zacks Rank

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

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