GenCorp Stock Could Explode on New Nuclear Bomb Contract


Up goes the Minuteman. Will GenCorp's stock price go up with it? Source: Wikimedia Commons

Aerojet Rocketdyne is heading back to space... with a bullet.

Yesterday, GenCorp (NYSE: GY  ) revealed that its Aerojet Rocketdyne subsidiary has been chosen to develop and demo a new rocket engine for the U.S. Air Force. Specifically, GenCorp will build a "Medium Class Stage III motor" to replace the current batch of SR-73 third-stage motors that help lift Minuteman III Intercontinental Ballistic Missiles into space.

First deployed in 1970, the Minuteman III is starting to look a little bit long in the tooth. But with sentiment weighing heavily against nuclear proliferation these days, and budget constraints always looming, the Air Force would like to the costs of maintaining its nuclear deterrent force as low as possible. Much to Boeing's (NYSE: BA  ) chagrin therefore (Boeing built the Minutemen), the Air Force is thinking that instead of building entirely new ICBMs, it might just upgrade the missiles' boosters instead, and hope that does the trick.

Hence, the Rocketdyne contract.

Financial details of the contract were not disclosed in Monday's release, though -- which poses a dilemma for investors: Even assuming GenCorp's engine passes muster, and the company wins a follow-on order to refurbish the Minutemen, how much might such a contract be worth to GenCorp?

Let's do a little back-of-the-envelope math, and see if we can't figure that out.

What we know
We know that the U.S. nuclear arsenal includes 450 Minuteman III ICBMs housed in missile silos throughout the American Midwest. We do not know precisely how much the engines on these missiles cost, or how much the Air Force is prepared to pay GenCorp to replace them.

We can estimate that cost, though, using published figures on the costs of other engines. For example, various sources put the cost of an RS-68 stage I booster at from $14 million to $20 million . Stage III engines are apparently pricier, with a Stage III RS-10 estimated at $38 million. Thus, the per-unit cost of GenCorp's new engine should fall somewhere within that range -- $14 million to $38 million.

It probably falls toward the high end -- but let's be conservative and just take a middle-of-the-range price -- say $26 million per new engine. Multiplied by 450 Minutemen, that works out to $11.7 billion in potential revenues for GenCorp, should it win a contract to upgrade the entire American ICBM fleet.

At the risk of stating the obvious, I'll come right out and say it: This contract could be a really big deal for GenCorp.

Just like Rocketdyne, we like things that go up
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  • Report this Comment On December 06, 2013, at 6:41 PM, afcarlin wrote:

    But what's the timeline on a "develop and demo" project? Sounds like any contract award would be years away...

  • Report this Comment On December 06, 2013, at 9:37 PM, TMFDitty wrote:

    Almost certainly. But last I heard, the aim is to extend the force's lifespan out *to* 2030.

    I don't know how long a rocket engine is supposed to last, but it seems likely that if reaching 2030 is the goal, then the engines that achieve this goal would be installed maybe 10 or 15 years prior to it. So ... 2015 installation, perhaps?

  • Report this Comment On December 07, 2013, at 5:42 AM, VikingBear wrote:

    The "Minuteman" missile uses solid fuel boosters, not liquid as in the "Titan". As such, it is not as susceptable to corrosion from the two liquids used by Titan--Hydrazine and Inhibited Red Fuming Nitric Acid.

    I believe the solid main boosters on Minuteman come from a company called Thiokol in Utah. They contain a rubbery shaped charge with a star-shaped cross-section, and are very stable.

    Over time, the shaped charges are subject to cracking, which can lead to uneven exhaust characteristics and catastrophic failures. Minuiteman missiles are routinely removed from service in their silos at age points, unloaded and refitted with instrument packages, and fired from Vandenberg AFB to Kwajaline Atoll in the South Pacific. This tests all the boosters and the treminal guidance systems on an individual Minuteman.

    The Stage III booster is smaller than the first and second stages, and may well be much more sophistcated, expensive,and classified.

    Another consideration might be that the 450 Minutemen may not be the only use for this new booster. Part or all of it could be fitted to other missles.

  • Report this Comment On December 07, 2013, at 6:14 PM, TMFDitty wrote:

    Good data. Thanks for the insight, VikingBear.

    Also, you are right about the additional uses for this booster. In its press release announcing the win, GenCorp noted that this booster could be "applicable to multiple future common strategic propulsion systems."

    TMFDitty

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