On Oct 10, 2013, we downgraded our recommendation on aerospace and defense company, Alliant Techsystems Inc. (ATK), to Neutral from Outperform. The company currently has a Zacks Rank #3 (Hold).
Why the Downgrade?
We have downgraded our recommendation on the stock primarily due to the negative impact from the current U.S. government shutdown, the U.S. defense budget cutbacks, gradual withdrawal of troops from Afghanistan and risks related to different program execution.
These negative factors have also been reflected on the Zacks Consensus Estimates. In the last 7 days, estimates for the company’s fiscal year 2014 earnings decreased by a penny to $8.83. In addition, the company’s expected sales growth is -0.68%.
Cause for Concern
Alliant Techsystems provides various kinds of products and services to different U.S. defense establishments and the inflows of contracts are a major source of its revenue. Due to the current U.S. shutdown, the company’s near-term performance might be affected.
The company generates a major chunk of its revenues from the U.S. Department of Defense contracts. The ongoing cutback on the U.S. defense budget is also a major cause of concern, which will significantly impact Alliant Techsystems’ upcoming order books.
Alliant Techsystems has a strong presence in the small caliber ammunition market. However, the ongoing withdrawal of troops from Afghanistan could lead to a decrease in demand for small caliber ammunitions. Moreover, lower ammunition demand may discourage the U.S. Department of Defense from placing new orders and renewing the existing contracts with the company.
Other Stocks to Consider
Other stocks from the defense industry that are presently performing well include Elbit Systems Ltd. (ESLT) with a Zacks Rank #1 (Strong Buy), and Esterline Technologies Corp. (ESL) and HEICO Corporation (HEI), each with a Zacks Rank #2 (Buy).