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Orbital ATK (OA) Signs $400M Long-Term Supply Agreements

Orbital ATK, Inc. OA announced that it has signed multiple long-term agreements with premier commercial ammunition suppliers for a period of three years. The deals are valued at more than $400 million. Timeframe for these agreements will extend from 2018–2020. This will enable the company to optimize factory operations while catering to customer needs and market demands.

This agreement mainly focuses on 5.56mm and .223 caliber ammunition manufactured at the Lake City Army Ammunition Plant in Independence, MO. The company aims at manufacturing and providing best quality ammunition to the U.S. Armed Forces and its allies.

Small Caliber Systems Division of Orbital ATK’s Defense Systems Group is a leading provider of innovative and affordable precision and strike weapons. It also specializes in advanced propulsion and hypersonics, missile components across air, sea and land-based systems, ammunition as well as related products.

Orders & Backlog

Orbital ATK is involved in more than 100 major development and production programs. Owing to its diverse product offering, the company continues to win contracts from its wide customer base. In first quarter of 2017, Orbital ATK received $1,640 million in new firm and option orders. By the end of first-quarter 2017, Orbital ATK's firm backlog amounted to nearly $9.8 billion, up 12% year over year. Total backlog (including options, indefinite quantity contracts and undefinitized orders) was approximately $14.8 billion, up 3% year on year.

In May 2017, the company announced that it has been awarded an initial $90 million contract from Northrop Grumman NOC to supply parts for the B-2 Spirit stealth bomber. The said contract extends for five years. (Read more: Orbital ATK Gets $90M Deal for B-2 Spirit Stealth Bomber)

In a highly competitive and rapidly evolving sector like defense, companies are required to regularly upgrade their technologies to retain competitive advantage. Keeping that in mind, Orbital ATK plans to spend $135 million for research and development, which will help it introduce new products and upgrade its existing ones as per customer’s demands.

Price Movement

Shares of Orbital ATK returned 13.5%, compared with the Aerospace-Defense Equipment industry’s gain of 13.3% in the last six months.

The company’s performance is expected to be driven by diverse product offerings and rising backlog.

Zacks Rank and Key Picks

Orbital ATK currently carries a Zacks Rank #4 (Sell). Some better ranked stocks in the same space are Curtiss-Wright Corporation CW sporting a Zacks Rank #1 (Strong Buy) and Rockwell Collins, Inc. COL carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Curtiss-Wright delivered a positive earnings surprise in all the previous four quarters with an average surprise of 5.11%. Its 2017 Zacks Consensus Estimate moved up nearly 2.7% to $4.49 per share in the last 90 days.

Rockwell Collins delivered a positive earnings surprise in all the previous four quarters with an average surprise of 2.45%. Its 2017 Zacks Consensus Estimate moved up nearly 10.9% to $6.02 per share in the last 90 days.

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