This Aerospace Veteran Is Soaring; FCF Is Up 900% In 3 Years

| About: Orbital ATK, (OA)

Executive summary:

  • Orbital Sciences Corporation (ORB) is a proven 32-year veteran of the aerospace industry.
  • 2013 saw ORB complete test flights, certification as a delivery company, and commencement of commercial deliveries to the International Space Station.
  • It is the only publicly-traded company certified as a provisioner for the ISS.
  • Free Cash flow has grown from negative $(34.3 million) in 2012 to $17 million for 2013 & will soar to $120-140 million in 2014.
  • Free Cash flow is forecast to continue or expand beyond these 2014 levels in 2015 and beyond.
  • With NASA's new commitment to remain participating in the ISS through 2024, the future looks very bright for ORB.


In April of 2013, I wrote to advise investors to begin accumulating shares when Orbital was selling for $16.21 as the company readied its Antares Rocket Vehicle and Cygnus delivery system for test launch on the way to becoming a certified provisioner of the ISS.

By October of 2013 the shares had risen to $23.26 for an impressive gain of 43.5% in just 6 months. In my article at that time, I again suggested a value of $32.50 to $46.00 per share. Orbital reported 4th Quarter and full 2013 year earnings last week on February 13th with no surprises. At the close of trading for the past week, shares stood at $28.27.

2013 earnings and management discussion were presented last week on February 13th. The past year saw Orbital reach many operational and financial milestones what will boost it even higher as 2014 progresses. These include:

  1. Successful test launch and certifications for the Antares rocket and Cygnus delivery system under contract to supply the ISS.
  2. Commencement of commercial deliveries to the ISS.
  3. 2013 saw ORB undertake a total to 21 major space missions and 20 smaller research rocket launches, plus another 12 system deliveries for a total of 53 operational events.
  4. GEO satellites revenues in the fourth quarter were up over 80% from their low point in the second quarter and are expected to increase further in 2014.
  5. NASA committed to extend participation in the ISS beyond 2016 at least continuing through 2024. This is expected to result in new contracts beyond the current ones to 2016 for Orbital Sciences.
  6. GAAP EPS of $1.13 compared to $1.02 for 2012.
  7. Free Cash Flow is soaring. Negative $(34.3 million) in 2012, a positive $17 million for 2013 and forecast to rise to a spectacular $ 120-140 million in 2014 and continue at those levels or growing in 2015 and beyond.

Orbital Sciences forecast 2014 numbers are solid, with 85% of 2014 revenues derived from existing committed contract backlog ($2.15 billion) and another $3.01 billion in backlogged contracts not yet committed for 2014.

Management indicated during the conference call that the rising cash stockpile and leap in cash flow may be applied in several ways:

  1. Expanding stock buyback programs.
  2. Instituting a dividend.
  3. Retirement of debt.
  4. Acquisitions.
  5. Continued R & D.

Orbital Sciences remains the only publicly-traded pure space player. It competes with Loral (NASDAQ:LORL) and Boeing (NYSE:BA) with its GEOStar satellite platform systems and management says they have been capturing an impressive approximate 50% portion of that market segment in which they compete (the lower half of the mid-energy segment). Other less-focused aerospace companies such as Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC) are not expected to benefit from the growing commercialization of space as strongly as the integrated space operator ORB.

Of course, investors should always consider the downside risk also. For Orbital, these can be summed up briefly; the shares have already run up 73.5% since my April 2013 article, cancellation of the ISS or failure to win any new supply contracts for it beyond 2016, significant expanded competition into its launch, satellite platform, and small rocket and payload business segments that erodes the company market share significantly. These are very unlikely in the long term and almost impossible in the short term due to ORB's established position as a veteran, diverse technology portfolio, and established standing as an ISS provider.

With its solid position as a focused space operations veteran, outstanding performance in 2013 and exploding Free Cash Flow, I re-iterate my buy recommendation and forecast for share price target of $35 to $46.

Disclaimer: I am not a licensed securities dealer or advisor. The views here are solely my own and should not be considered or used for investment advice. As always, individuals should determine the suitability for their own situation and perform their own due diligence before making any investment.

Disclosure: I am long ORB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My long position is via the March2014 $25 call options