We maintain our long-term ‘Neutral’ recommendation on Alliant Techsystems Inc. (ATK) following a mixed quarter. Earnings surpassed our estimates while sales missed forecasts.
Alliant’s margins in the quarter were helped by effective cost control measures. However, lower contributions from the Aerospace Systems and Armament Systems businesses, due to lower NASA and military ammunition sales, indicate concerns.
Minneapolis, Minnesota-based Alliant is a well diversified aerospace and defense contractor delivering products and solutions that are vital for the preservation of U.S. national security. It is a leading global supplier of solid rocket motors and is one of the largest manufacturers of ammunition in the U.S.
It is the sole-source supplier to the department of defense (DoD) for various calibers of ammunition. The company also has a strong relationship with NASA and is developing the Ares 1 Solid Rocket to replace the Space Shuttle.
Additionally, Alliant provides composite components for commercial and military aircraft, as well as affordable, precision-strike weapon systems. It is the largest supplier of small-arms ammunition to the U.S. armed forces and police. This diversification in the company’s revenue stream will go a long way in keeping its top line growing.
Alliant’s operating model stands to benefit from its growth initiatives, recent acquisitions and international expansion plans. Furthermore, a diverse mix of programs and broader exposure to the aerospace and defense markets augur well for the company.
Nonetheless, there remains a concern over Alliant’s business concentration on the U.S. Government and NASA and their influential budgets, which are staring at cuts. The company’s performance could be impacted if it is unable to diversify its business concentration risk. Additionally, the civil ammunition business is beginning to slow down after several years of strong growth – another factor that could impact the company’s performance.
Alliant also faces competition from a number of players in each business area. Some of the company’s peers include Raytheon Co. (RTN) and Northrop Grumman Corporation (NOC).
Alliant’s ability to compete successfully depends on a number of factors, including the effectiveness and innovativeness of research and development programs; better program performance than competitors, cost advantage; readiness with respect to facilities, equipment, and personnel to undertake the program for which it competes; and past performance and demonstrated capabilities.
ALLIANT TECHSYS (ATK): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
RAYTHEON CO (RTN): Free Stock Analysis Report
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