Is Orbital (OA) Stock's Place In Your Portfolio Justified?

We issued an updated research report on Orbital ATK (NYSE:OA) on Oct 16. Notably, this premier aerospace and defense company boasts a diverse product offering by designing, manufacturing and delivering launch vehicles and associated propulsion systems along with satellites and composite aerospace structures. It also supplies ammunitions and related accessories to the U.S. government agencies.

Thanks to its diverse product portfolio, the company continues to win a steady stream of contracts from its customer base. Orbital exited 2016 with a backlog of nearly $14.4 billion (up 10% year over year), out of which firm backlog was $9.3 billion (up 13%).

The company is currently involved with a number of development and production programs with projected 2017 capital expenditures to be nearly $225 million. These programs assure a steady source of revenues and inflow of new contract for the company.

However, we should note that Defense is a highly competitive sector. Consequently, Orbital needs to introduce high-quality products and services primarily developed through technological upgrades, innovative research, development programs and skillful workforce, which in turn call for huge investments.

The company also faces tough competition from its peers like Raytheon Company (NYSE:RTN) and Spirit AeroSystems Holdings, Inc. (NYSE:SPR) .

Orbital is also subject to market risks arising out of changes in foreign currency exchange rates which could negatively impact profitability. Currency fluctuations may impact product demand and the prices of the raw materials. Further, operating margins may be negatively affected if it ends up paying high prices for raw materials.

Since Northrop Grumman Corp.’s (NYSE:NOC) announcement of Orbital’s acquisition, shares of the later have dropped 0.9% compared with the industry’s gain of 3.2%. Evidently, following the news of the buyout, the company has been trading lower than the Zacks Aerospace-Defense Equipment industry.

Considering the transaction price set at $134.50 per share for Orbital’s shareholders and the company having reached $133.44, as of Oct 16, we may say that there remains a very little upside potential of the stock, at present.

Zacks Rank

Orbital currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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