For those unfamiliar with Orbital Sciences (ORB), the company is a leader in space missions and satellite services. The company operates its business in three segments: launch vehicles, satellites and space systems, and advanced space programs. The company's contract with the International Space System, huge backlog, and human space exploration could send shares much higher than current levels.
During last week, Orbital's Antares rocket took a successful maiden voyage in preparation for trips to the International Space System. A payload test will happen in June or July with the Cygnus launch. This launch was a success and sets the company up nicely to capture its huge contract with the International Space System. From 2013 to 2016, Orbital will have eight missions to supply the International Space Station. This contract is worth $1.9 billion for Orbital Sciences.
Orbital enjoyed a successful 2012 that saw the launch of 23 rockets, five satellite deployments, and 20 other system deliveries. Fiscal 2013 through 2015 could be even bigger. As of 12/31/12, Orbital had contracted backlog of $2.2 billion and a total backlog potential of $5.0 billion. That backlog makes up huge percentages of projected revenue for the years 2013 through 2015. Eighty percent of fiscal 2013 revenue is included from the backlog, while 60% and 40% make up fiscal 2014 and fiscal 2015 respectively.
Here is a breakdown of revenue for Orbital Sciences in fiscal 2012:
$134.2 mil, +2%
$527.3 mil, +9%
Satellites and Space Systems
$125.3 mil, +3%
$496.2 mil, -10%
Advanced Space Programs
$102.0 mil, -19%
$470.1 mil, -8%
$354.6 mil, +6%
$1.44 bil, +7%
Earnings Per Share
From a March presentation, Orbital's growth strategy centers around three key areas:
· Establish and maintain leading positions in markets for smaller space systems
· Grow in existing markets while expanding into closely adjacent areas
· Build shareholder value through solid execution, disciplined resource allocation and strong corporate governance
The second part of the growth strategy is one that could be a huge potential for the company. Orbital listed human space exploration as one of those adjacent areas. Human space was also listed later in the March presentation as a program that will be introduced by the company in 2013. This is an area that has seen several large companies and a couple of private companies take interest in. Celebrities and billionaires are shelling out money for the chance to enter orbit and see space for the first time.
Back in 2012, the FAA listed space tourism as a potential $1 billion industry in the next 10 years. Orbital is one company that will benefit from the vast amount of people wanted to venture outside of Earth. At the time of the FAA study, Virgin Galactic had already collected $60 million in deposits that cost $200,000 per person. Several public companies like Boeing (BA) and Honeywell (HON) also have subsidiaries or partnerships with space exploration companies as well. Orbital could actually become a buyout target if a large company wants to become more involved in this growth segment.
Orbital's revenue was split almost equally among its three segments in the fiscal year. The company's revenue is also evenly distributed based on customer bases. The breakdown of customers in fiscal 2012 was:
· 40%: NASA, civilian agencies, universities
· 39%: Department of defense, intelligence agencies
· 21%: Commercial and international satellite operators
Orbital Sciences competes with Space X, a publicly traded company with ties to Tesla Motors (TSLA) man Elon Musk. Space X competes with Orbital in launch vehicles and human space exploration. Orbital beat Space X with the first privately built rocket (Pegasus) in space in the year 1990. Musk has been rumored to take Space X public sometime after success with Paypal and Tesla. Until that happens, Orbital is a way to play the shift to private missions with NASA and human space exploration.
Orbital shares traded up 3% on Monday to $16.65. This places shares at the top end of their fifty two week range ($10.59 to $17.43). This also gives shares a high valuation compared to earnings per share. Analysts on Yahoo Finance see the company earning $1.06 per share in fiscal 2013, while Orbital's own range is $1.00 to $1.10.
Shares of Orbital traded closer to $50 in 1998 and traded over $25 as recent as 2008. For growth investors, this is a great play on several key areas. More companies will need the small satellites that Orbital makes, more people will want to enter space, and NASA will continue to use private companies to send supplies to the ISS.