Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Orbital Grounded

I'll give Orbital Sciences (NYSE: ORB  ) one thing. This high-tech wunderkind made my valuation concerns look obsolete right quick.

A few days ago, previewing this rocket maker's fiscal 2007 earnings report, I praised the company for being among Motley Fool Rule Breakers recommendations -- the kind that generate real free cash flow. Problem was, Orbital's 30 price-to-earnings ratio looked pretty steep relative to the low-to-mid-teens P/Es of peers such as Raytheon (NYSE: RTN  ) , Northrop (NYSE: NOC  ) , Lockheed (NYSE: LMT  ) , and Boeing (NYSE: BA  ) . What's more, although existent, Orbital's free cash flow wasn't quite strong enough to support the stock's similarly altitudinous price-to-free cash flow ratio.

Um, on second thought ...
Orbital answered that latter concern in spades yesterday, with a report of Q4 free cash flow that nearly equaled what it had generated in the first three quarters of the year combined. Annual free cash flow has rocketed to $81.9 million, to give the stock a price-to-free cash flow ratio of 18 -- not at all unreasonable if Orbital manages to live up to the analysts' projected 15% annual profits growth.

Judging from 2007's performance, that looks entirely believable. Revenues grew 35% for the year, to $1.1 billion. The company's most profitable business, launch vehicles, posted 27% growth. Its biggest business, satellites, grew by a respectable 14%. But what really launched sales into orbit were the two smallest divisions -- "advanced space programs" (which works on the NASA Orion space program), and "transportation management systems." The latter unit grew sales 33%. The former more than tripled its revenues.

Nor does it seem this growth spurt will flame out any time soon. Orbital booked nearly twice as much new business as recorded sales and ended the year with a backlog doubled to $3.9 billion.

Orbital expects to generate about $1.1 billion in revenues this year, so it essentially is flat against 2007. However, the company also expects to improve operating margins by perhaps 50 basis points over this year's 8%, and if so, operating profits should get a nice boost. But let me add two caveats to this generally bullish prognosis:

  • Orbital predicted that free cash flow will decline to between $75 million and $80 million in 2008.
  • Or lower. Work on a new "Taurus II" medium-capacity rocket could cut this year's free cash flow in half (and subtract perhaps $0.14 per share from net profit).

Free cash flow declining, and perhaps by half? I don't know about you, but that's not exactly what I look for in a growth stock.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 578897, ~/Articles/ArticleHandler.aspx, 10/28/2016 7:31:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 4:02 PM
OA $75.20 Up +0.28 +0.37%
Orbital ATK CAPS Rating: *****
BA $143.01 Down -0.30 -0.21%
Boeing CAPS Rating: ****
LMT $248.00 Down -0.53 -0.21%
Lockheed Martin CAPS Rating: ****
NOC $228.38 Up +3.03 +1.34%
Northrop Grumman CAPS Rating: ****
RTN $137.19 Up +0.91 +0.67%
Raytheon CAPS Rating: ****