Alliant Tech Ammo Contract Is Potential Game Changer

Alliant Techsystems Inc. (NYSE: ATK) is in the somewhat troubled defense sector that faces challenges from the coming fiscal cliff that includes defense budget cuts. That might automatically create a situation where investors would just run for the hills and avoid a group. As with most large complex issues facing many sector, the reality is that analysis is just not always quite that easy.

News out last night shows that Alliant Techsystems won a contract that is valued up to as much as $8.4 billion for the supply of small-caliber gun ammunition to the U.S. Army and to continue operations at the Ammo plant in Independence, Missouri. For a company with under $5 billion in annual revenues, this could be a huge win even though the preliminary report from Monday signaled that Alliant had won the contract. It is the size that matters, and the notion that it is a seven-year pact with a period that could go up to ten-years.

The last three years (March-end) of revenues are as follows: $4.61 billion for 2012; $4.84 billion for 2011; and $4.80 billion for 2010. It is important to realize that this is a ten-year fixed-price contract. The important issue to consider is that the value is really "up to" that amount, but this is a huge score for Alliant. Keep in mind that news was out this week that Alliant had two rockets which put a military GPS satellite up in space this week.

Investors often look over and skip Alliant because its market cap is only $1.7 billion and because a large portion of its business is deemed to be tied to booster rockets for space launches and the end of the government space program created an overhang.

Without knowing the full outcome of the coming fiscal cliff it may be premature to know which companies are going to win no matter what under the news programs. That being said, this ammo contract may have just secured a decade's worth of a substantial portion of its revenues. This may even partially shield the company from many of the political angles which investors have to consider.

Alliant also is way down from its highs with shares trading around $52.50 versus a 52-week range of $43.08 to $64.76. Thomson Reuters has a consensus price target of almost $57.00 and the dividend yield is about 1.5% here.

JON C. OGG