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Alliant Gets $71M AARGM Contract

Zacks Equity Research

Aerospace and defense company Alliant Techsystems Inc. (ATK) received a $71 million contract from the U.S. Navy to start a full rate production of the Advanced Anti-Radiation Guided Missile (“AARGM”). The benefit of these missiles has prompted the defense department to increase production and opt out from low rate initial production.

Per the contract, Alliant will provide operational missiles to the U.S. Navy and Government of Italy. Besides, the company will also provide training missile systems and look into other logistics for manufacturing, sparing, and fleet deployment of these missiles.

Alliant has developed AARGM jointly with other international players. The missile is an upgrade of the earlier AGM-88 HARM systems used by the Navy. AARGM employs advanced technology, namely a millimeter wave terminal seeker, advanced anti-radiation homing receiver and a Global Positioning System/inertial navigation system. These features enhance the capacity of the U.S. Navy and its allied countries to engage in and take out hostile targets.

The missiles are currently used in the U.S. FA-18C/D Hornet aircraft, but can also be attached to a host of other fighter jets like the U.S. Navy's EA-18G Growler and FA-18 E/F Super Hornet aircraft, and the Italian Air Force's Tornado ECR aircraft. The missile can also be used with F-35, EA-6B, allied FA-18s, and U.S. and allied F-16s. We believe the flexibility and compatibility of the missile to be used in different fighter jets facilitates the U.S. Navy to deploy it in different missions.

Despite persistent pressure on the defense companies from potential U.S. defense budget cuts, Alliant has been able to post solid performance in the past few quarters. The company has surpassed our expectation in the last four quarters thanks to consistent contract gains from the U.S. defense departments.

We believe this diversified aerospace and defense company will sustain its strong performance in the upcoming quarters. The company now expects earnings per share for fiscal 2013 in the range of $7.00 to $7.30. The Zacks Consensus Estimates for the second quarter and fiscal 2013 are $1.46 and $7.16 per share, respectively.
Alliant Techsystems Inc. currently has a short-term Zacks #1 Rank (Strong Buy rating). The company competes with Rockwell Collins Inc. (COL) and Elbit Systems Ltd. (ESLT).

Based in Minneapolis, Minnesota, Alliant Techsystems supplies aerospace and defense products to the United States government agencies. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers. With a market capitalization of $1.64 billion, the company has 17,100 full time employees.

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