Balanced View on Alliant Techsystems - Analyst Blog

On April 4, we have issued an updated research report on Alliant Techsystems Inc. ATK. The U.S. aerospace and defense company supplies products and services to the U.S. government agencies. It also has business alliance with the National Aeronautics and Space Administration (NASA). Currently, Alliant Techsystems is expanding its operations under the Sporting Group segment. In addition, its effort towards maximization of shareholders' wealth is also appreciable. However, disruptions in supply of raw materials and higher expenses at the commercial aerospace business might challenge the company's future performance.

Alliant Techsystems, a Zacks Rank #2 (Buy) stock, reported strong performance in third-quarter of fiscal 2014. Both top as well as bottom line surpassed the Zacks Consensus Estimate. Quarterly earnings and revenues also improved year over year, primarily due to strong contribution from the Sporting Group segment and positive impact from acquisitions of Bushnell Group Holding Inc. (“Bushnell”) and Caliber Company (“Caliber”).

Currently, demand for the sporting products is gradually increasing in the U.S. To meet the growing customer requirement, Alliant Techsystems is expanding its portfolio under the Sporting Group segment. The company acquired Bushnell and Caliber in 2013. These firms offer different types of rifles and sports devices. These transactions will enable Alliant Techsystems to extend its product offerings and visibility.

Alliant Techsystems continues to demonstrate its competence in improving the operating cash flow. The company's cash flow from operating activities during the first nine months of fiscal 2014 was $222.3 million, up 87.8% year over year. A strong cash generation capability supports Alliant Techsystems' steady expansion program.

In addition to extending operations through internal and inorganic growth projects, Alliant Techsystems has a stable dividend payment history and is currently following a 2-year share-repurchase program. These initiatives will allow Alliant Techsystems to attract more investors on the stock.

However, we know that Alliant Techsystems uses various raw materials, including steel, copper, zinc and aluminum, to manufacture several products. Interruptions in supply of raw materials, delay in replacement of materials or delay in adding new raw material suppliers might have an adverse effect on the company's future performance.

Key Picks from the Sector

Some other stocks worth considering in the aerospace and defense equipment industry include Astronics Corporation ATRO, Curtiss-Wright Corporation CW and HEICO Corporation HEI. While Astronics holds a Zacks Rank #1 (Strong Buy), Curtiss-Wright and HEICO carry a Zacks Rank #2 (Buy).