Call it "the rocket launch heard 'round the world."
On April 5, 2022, one-time humble internet bookseller Amazon.com (AMZN 1.30%) proved it's serious about launching a satellite internet service. It did so by awarding the biggest single collection of satellite launch contracts ever in history -- as many as 92 (or 93) separate rocket launches contracted from space companies ABL Space, Airbus's Arianespace, Boeing (BA -0.76%) and Lockheed Martin's (LMT -0.27%) joint venture United Launch Alliance (ULA), and Jeff Bezos's own Blue Origin as well.
In total, the contracts Amazon announced this month could be worth as much as $10 billion in revenue to the winners -- and it's not only these companies that will benefit.
Image source: Aerojet Rocketdyne.
Rockets go fast -- but they don't go very far without engines
Blue Origin itself, for example, is likely to benefit from Amazon's largesse in two ways -- first, as a rocket launcher winning its own contracts and, second, as a supplier of rocket engines to power the first stage of ULA's Vulcan Centaur rockets, which will be used to launch a lot of the Amazon satellites.
Another company that will benefit -- but slightly below the radar of the high-profile rocket-makers named above -- is rocket engine specialist Aerojet Rocketdyne (AJRD).
Aerojet may have lost the contract (to Blue Origin) to build the main engines for ULA's "Vulcan" first-stage rocket, you see. But Aerojet still builds the RL10 engines that power the second "Centaur" stage of Vulcan Centaur. That's why -- less than a week after Amazon announced it was awarding 47 launches to ULA -- ULA announced it is ordering 116 RL10C-X rocket engines from Aerojet.
As ULA CEO Tory Bruno explained, "RL10 is the highest performance upper-stage rocket engine flying today." That's why ULA already uses the RL10 to power the upper stages of its Atlas V and Delta IV rockets -- and why it will keep using the RL10 for the first iteration of Vulcan Centaur as well.
What it means to investors
How big a deal is this for Aerojet Rocketdyne and its investors? Consider:
Neither Aerojet nor ULA divulged the value of this contract, but according to data from the McNally Institute, Aerojet charges somewhere between $17 million and $20 million per RL10 rocket engine. Thus, 116 of these RL10 engines should be worth anywhere from $2 billion to $2.3 billion in incremental revenue for Aerojet Rocketdyne.
To put that in context, Aerojet is coming off its best revenue year ever in 2021, a year in which it booked full-year sales of just under $2.2 billion. But this single contract for RL10 engines for ULA has the potential to generate more revenue for Aerojet than it got from all its business activities in 2021 -- its best revenue year in history.
And this will be a profitable contract, too. According to S&P Global Market Intelligence data, Aerojet Rocketdyne earns approximately a 13.1% operating profit margin on its aerospace sales. Assuming this holds true for the current contract, Aerojet investors can expect to reap at least $260 million in operating profit from this contract and perhaps as much as $300 million.
How does that compare historically? Last year, Aerojet's profits hit a historic peak -- $242 million. But the RL10 contract promises to generate more profit for Aerojet Rocketdyne than it earned in its best-ever year for profits-production.
Caveats and provisos
That being said, Aerojet Rocketdyne may have to wait a while for its payday.
At last report, Amazon was still waiting for ABL to get the ball rolling by launching its first two test satellites, KuiperSat-1 and KuiperSat-2, in late 2022. Then Amazon will need to test those satellites in orbit for a while. Only then can ULA, Arianespace, and Blue Origin begin serial launches of operational satellite tranches to orbit.
All of which is to say: It's not 100% clear how quickly ULA will need these engines, how quickly it will want Aerojet to deliver them -- or how quickly Aerojet can expect to get paid. What we do know is that once the project is underway, it's expected to take about five years for Amazon to launch all the satellites it wants to launch. That still works out to as much as a 20% bump in annual sales and profits for Aerojet, though.
And it means that all the analysts out there still forecasting only a "12% growth rate" for Aerojet Rocketdyne (according to figures from Yahoo! Finance) are going to be surprised when they see how fast Aerojet is actually going to grow.
