Orbital No Longer A Buy At Argus, Waiting For Cash Flow To Improve

Orbital, which was created through the combination of Orbital Sciences and the Aerospace and Defense Groups of Alliant Techsystems, has announced an upcoming earnings restatement that raises uncertainty over the quality of future earnings.,/p>

The upcoming restatement involves a 10-year, $2.3 billion contract with the U.S. Army to manufacture and supply small caliber ammunition.

"Though the company's earnings trajectory is promising relative to the peer group, an accounting delay and a forthcoming earnings restatement have raised risks related to future cash flow," analyst John Eade wrote in a note.

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Eade trimmed his adjusted pro forma 2016 EPS forecast to $5.45 from $5.55 and lowered his 2017 estimate to $6.00 from $6.30. The analyst also cut his long-term EPS growth rate forecast to 8 percent from 13 percent.

Shares of Orbital fell 20 percent following the announcement on August 10 and have recovered only slightly since that time. Over the past quarter, they underperformed with a decline of 15 percent versus an increase of 6 percent for the S&P 500. Over the past year, the shares have also underperformed, rising 3 percent versus a 15 percent increase for the broad market.

"We will look to move OA back to the BUY list when we see more clarity on the restatement, as well as better sales, order, and cash flow numbers," Eade continued.

At time of writing, shares of Orbital were trading at $75.73, up 1.68 percent on the day.

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