Foolish Forecast: Orbital Swings 'Round Again

For much of last year, rocket maker Orbital Sciences (NYSE: ORB  ) beat Wall Street's earnings predictions with a stick, and the slew of contract wins reported by this Motley Fool Rule Breakers pick bode well for continued outperformance in 2008. Orbital reports its first fiscal quarterly earnings results tomorrow morning. Let's see what the "experts" are predicting for it.

What analysts say:

  • Buy, sell, or waffle? Seven analysts keep Orbital on their radar. Buy ratings outnumber holds 6 to 1.
  • Revenue. On average, they're looking for quarterly sales to rocket 19% to $271.1 million.
  • Earnings. Profits are predicted to perform even better, up 21% to $0.23 per share.

What management says:
Now, about those contracts. At the tail end of the quarter, Orbital was one of four companies chosen to compete for a $250 million "sounding rockets program" to build research rockets. Other contestants include Alabama Aircraft Industries (Nasdaq: AAII  ) , L-3 Communications (NYSE: LLL  ) , and Alliant Techsystems (NYSE: ATK  ) . Other contract wins during the quarter included contracts from DARPA and NASA. Earlier this month (and after the close of the quarter), Orbital successfully completed testing on the Launch Abort System it is developing in cooperation with GenCorp (NYSE: GY  ) as part of the Lockheed Martin (NYSE: LMT  ) -run Orion project.

And Orbital reported its latest win just yesterday: a $40 million contract to provide Minotaur rockets to the Air Force for use in its "Operationally Responsive Space" (military spy satellites) program.

What management does:
As you can see in the table below, rolling gross and operating margins took a dip last quarter, but management expects to nip that trend in the bud. According to Orbital, operating margins this year could rise right back up to the 8.5% level they were at one year ago -- roughly on par with what aerospace giant Boeing (NYSE: BA  ) is pulling down.

Margins

9/06

12/06

3/07

6/07

9/07

12/07

Gross

18.9%

19.8%

19.1%

18.4%

17.7%

17.3%

Operating

7.8%

8.5%

8.3%

8.1%

8.2%

8%

Net

4.4%

4.4%

4.5%

4.5%

4.8%

5.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As I mentioned in last quarter's post-earnings column, Orbital accelerated its free cash flow production dramatically in Q4 2007, generating around $82 million. So what's Orbital planning to do with all that cash?

Invest it. Orbital sees an opportunity coming up to expand its business from the small to the "medium launch" category (lifting medium-sized satellites into orbit). With Boeing's Delta II rocket rapidly approaching obsolescence, and perhaps slated for retirement by 2010, Orbital believes that if it can develop a new Taurus II rocket in time, it may be able to steal market share from its larger rivals.

The downside? Development costs money. In the near term, Orbital could see this year's earnings cut by perhaps $0.14 per share, and free cash flow halved, if it proceeds with developing Taurus II. More on these plans after the earnings come out.

What did we expect out of Orbital last quarter, and what did we get? Find out in:


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