Orbital ATK Well Poised on New Orders amid Stiff Competition

Orbital ATK's OA diverse product offering and involvement in major development and production programs will continue to swell its order book. In first-quarter 2017, the company received $1,640 million in new firm and option orders. Defense is a highly competitive sector, which is evolving rapidly. Hence, the company needs to upgrade and innovate to retain its competitive advantage.

Thanks to its diverse product offering, Orbital ATK continues to win a steady stream of contracts from its wide customer base. As of Apr 2, 2017, the company's total backlog was nearly $14.8 billion (up 3% year over year), out of which, firm backlog was $9.8 billion (up 12% year over year). The current backlog provides 95% and 60% visibility of the targeted 2017 and 2018 revenues, respectively.

Orbital ATK is involved in more than 100 major development and production programs. Research and Development expenses in 2017 is expected to be $135 million, which will help it churn out new products and upgrade its existing ones as per requirement of its customers.

The accident in the company's Lake City Army Ammunition Plant actually pointed out that even with safety measures, there is always a possibility of mishap due to the nature of products that it is dealing with. Orbital ATK's internal investigation might locate a fault in the entire process and could suggest some remedial measures to be implemented in the plant, which will further increase the cost of operations.

In order to remain competitive in the defense space, Orbital ATK needs to offer very high-quality products and services, which can be achieved primarily by upgrading technologies through innovative research and development programs and a skilled workforce. If the player fails to introduce innovative products that meet these changing needs and train existing employees with modern technologies and retain qualified professionals, it will be unable to compete with its peers.

Price Movement

Shares of Orbital ATK returned 13.9%, compared with the Aerospace-Defense Equipment industry's gain of 7.4% in the last six months.

Rockwell Collins reported a positive earnings surprise of 2.29% in the first quarter of 2017. Its 2017 earnings estimates moved up 10.7% in the last 60 days to $6.01.

Raytheon Company reported a positive earnings surprise of 7.45% in the first quarter of 2017. Its 2017 earnings estimates moved up 1.35% in the last 60 days to $7.48.

Heico Corporation reported a positive earnings surprise of 6% in the first quarter of 2017. Its 2017 earnings estimates moved up 1.5% in the last 60 days to $2.07.

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