Orbital Sciences (ORB) Shares Down 14% After Rocket Explosion

by Ryan Fitzwater, Director of Research, The Oxford Club

Shares of Orbital Sciences (NYSE: ORB) are down more than 14% this morning after one if its Antares rockets exploded six seconds into liftoff yesterday evening. The rocket’s launch pad was located in Wallops Island, Virginia, and the rocket was en route to supply the International Space Station.

Thankfully this was an unmanned rocket, and there were no reported injuries.

Orbital Sciences’ rocket was carrying over 5,050 pounds of supplies for the space station. The total cost of the accident is still unknown, but the cost of the rocket and the spacecraft attached to it has a steep price tag of more than $200 million.

The botched launch was the third such mission to be carried out by the company under a $1.9 billion contract it has with the National Aeronautics and Space Administration (NASA). Since NASA is no longer in the rocket business, it has since commercialized routine cargo flights.

Elon Musk’s SpaceX is another company providing shipments of food and supplies for NASA. And starting in 2017, NASA is counting on SpaceX and Boeing (NYSE: BA) to fly U.S. astronauts the space station as well.

No Longer Flawless

Up until yesterday’s accident, all of the supply missions provided by Orbital Sciences and SpaceX had taken place with no major errors. Of course, a rocket blowing up is considered a “major error.”

Other than Orbital Sciences stating, “The vehicle suffered a catastrophic failure,” little is known at this point.

The company and NASA are teaming up to investigate the explosion, but it will take a while to complete.

Orbital Sciences’ executive vice president, Frank Culbertson, tried to assure the media and investors, “We will conduct a thorough investigation immediately to determine the cause of this failure and what steps can be taken to avoid a repeat of this incident.” He stated, “We will find out what went wrong and we will correct it and fly again.”

Of course, those words have done little to help the stock from tanking this morning. It is down over 14%, which accounts for more than $263 million in lost market cap.

The explosion has also raised concerns about Orbital Sciences’ pending merger with Alliant Techsystems (NYSE: ATK). The merger was announced on April 29, and shareholders of both companies are supposed to vote on the deal Decembers 9. The recent accident could derail the vote from taking place and/or cause shareholders to vote against it in December.

Orbital’s share price was up over 30% year-to-date as of yesterday’s close, while the overall market has been up around 7%. With today’s pullback that return has been reduced to just 11.8%.

The fallout from yesterday’s accident could cost Orbital future business. But it could also provide investors with an excellent opportunity to pick up shares of a company that has steadily grown earnings over the last five years, at a discounted price.

Let’s see how it performs on the Investment U Fundamental Factor Test. If a solid grade shakes out, those investors willing to take on shares with today’s price drop will at least know they are jumping into a company with solid financial footing.

Earnings-per-Share (EPS) Growth: Orbital Sciences saw a 34.62% jump in EPS last quarter. Can’t complain about that.

Price-to-Earnings (P/E) Ratio: Based on today’s share price, the company currently has a P/E of 20.84, close but still slightly above the current industry average of 20.15.

Debt-to-Equity Orbital Sciences’ debt-to-equity of 16.07% is substantially below the industry average of 67%. Good to see that the company is far from overleveraged following the loss of a $200 million spacecraft.

Free Cash Flow per Share Growth : Orbital saw an impressive 94.77% increase in free-cash-flow last quarter. That always helps.

Profit Margins The company’s profit margins are right in line with the industry average; both are 6.3%. We will give it a pass here.

 Return on Equity Return on Equity Orbital missed on the last metric. Its ROE of 8.42% is well below the industry’s 22.51%. Plenty of room for improvement here.

*Why did we look at these specific metrics? Find out more here.

Fundamental Factor Test Score

B: Buy with Caution (Matches four key metrics, no less)

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