Alliant Techsystems Inc by 53yps7

VIEWS: 8 PAGES: 19

									October 8, 2007
  Hunter Rock
Mike Ohrnberger
Table of Contents
•   Quick Facts
•   Company Overview
•   Corporate Governance
•   Financial Ratio Comparison
•   Stock Performance
•   Stock Valuation
•   Valuation by Comparables
•   FCF Valuation
•   Debt Issue
•   Recent News/Developments
•   Analyst Recommendations
•   Summary and Conclusions
•   Recommendation
Quick Facts
• Industry: Aerospace/Defense Products and
  Services
• Sector: Industrial Goods
• Price as of 10:30 am - $106.99
• 52-week high/low: $75.50 / $119.95
• Beta: 0.78
• Market Cap: $3.77 billion
• Shares Outstanding : 33.60 million
• Dividend (Yield): N/A
• P/E Ratio: 19.50
• PEG Ratio: 1.65
•   *Yahoo Finance
Company Overview
• “Alliant Techsystems contracts with the U.S.
  government, allied nations, and prime contractors to
  provide supplies for aerospace and defense products. It
  also supplies ammunition and related accessories to law
  enforcement agencies.” - Yahoo finance

• Strategy: “To build on our core businesses of
  conventional munitions and rocket mortars and grow as
  the leading provider of advanced weapon and space
  systems.” - www.atk.com

• The company is segmented into 3 departments. They
  are: Mission System Group, Amunition System Group,
  and Launch System Group.
Company Overview (cont.)
• It’s two closest competitors are General Dynamics and
  Raytheon. However, ATK must also compete with much
  larger aerospace and defense conglomerates such as
  Lockheed Martin and Northrop Grumman.

• The company was founded in 1990 and is based in
  Edina, Minnesota.

• There are 16,500 employees and the company has
  facilities in 21 states and representatives in 50
  countries.
Financial Ratio
Comparisons
                    Alliant    Raytheon    Lockheed Martin    General Dynamics   Industry
Valuation
P/E Ratio               19.5       12.16             16.63               19.15        27.54
Market Cap.            3.77B      27.88B            44.78B              34.99B     209.02M
Beta                    0.78        0.54                0.3               0.67         0.71
Div. Yield               N/A      1.60%             1.30%               1.30%        1.43%

Growth Rates
Sales% (5yr)         14.62%        4.84%            10.55%              14.83%      10.25%
EPS% (5 yr)          20.42%      238.31%           125.49%              12.59%      30.28%

Mgmt. Effect
ROA                   7.45%        5.38%             8.05%               7.81%       7.66%
ROI                   8.12%        6.52%            12.38%              12.89%      12.38%
ROE                  29.34%       10.42%            38.15%              18.89%      30.75%

Profitability
Pre-Tax Margin        7.69%        8.89%             9.74%              10.66%       9.65%
Net-Profit Margin     5.34%       11.27%             7.00%               7.04%       6.80%
Stock Performance



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       Stock Valuation
                  STOCK VALUATION MODELS
NAME OF COMPANY                                          Alliant Techsystems

LAST YEAR                                                       2006   Year
NUMBER OF SHARES OUTSTANDING (Mil.)                             33.60  Millions of Shares
MARKET PRICE OF STOCK / SHARE                                 $112.19  Dollars Per Share       $143.19 Price of Stock
                                            All Data
NET INCOME AFTER TAXES                                       $1,841.00 Millions of Dollars             Expected in
                                           Required
TOTAL SALES OR REVENUES                                      $3,564.00 Millions of Dollars             5 years
BOOK VALUE OF EQUITY (FROM BALANCE SHEET)                     $557.00  Millions of Dollars
RISK FREE RATE (L/T T-Bond)                                    5.00%   Annual Percentage Rate
DIVIDENDS PAID (TOTAL AMOUNT PAID)                             $0.00   Millions of Dollars
STOCK REPURCHASES (TOTAL AMOUNT PAID)                         $216.00  Millions of Dollars
REQUIRED INFORMATION FOR CALCULATION OF REQUIRED RATE OF RETURN
BETA OF STOCK                              Required             0.78
MARKET RISK PREMIUM (5%-6% Historically)       Data            5.50%   Expected Market Risk Premium %
REQUIRED INFORMATION FOR VARIABLE GROWTH RATE VALUATIONS
                                          Must be positive
EXPECTED GROWTH RATE (EARNINGS OR        values in each cell
DIVIDENDS & STOCK REPURCHASES)                                5.0000%  10.0000% 8.0000%        6.0000%   5.0000%


COMPUTER-GENERAT ED CALCULAT IONS

ST OCK VALUE - ZERO GROWTH MODEL                               $58.60
                                                                               *Numbers as of March 31, 2007.
ST OCK VALUE - CONST ANT GROWT H MODEL                        $154.77


ST OCK VALUE - VARIABLE GROWTH MODEL                          $122.18          *Average Stock Price excluding Zero-
                                                                               Growth Model = $147.49
ST OCK VALUE - DIVIDEND & EARNINGS MODEL                      $113.59

ST OCK VALUE - PRICE / EARNINGS MODEL                         $199.43
       Valuation by Comparables
Public Company Comparables
Comparison of Market Performance                                                      Quic kTime™ and a                                                                    Quic kTime™ and a                                      Quic kTime™ and a
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                                                                          Valuation Information                             Quic kTime™ and a
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                                                                                                                                                                Enterprise Multiples                                 Equity Multiples
                                                                     Stock Price as
                                        Ticker                         of 10/5/07 Enterprise Value                                              Revenue               EBITDA                            EBIT       P/E                                        P/BV
Alliant Techsystems                        ATK                          $112.19                            $5,209.0                                 1.46 x              12.40 x                        15.32 x    20.49 x                                     6.76 x
Raytheon                                   RTN                           $63.76                          $29,385.0                                  1.45 x              12.59 x                        14.98 x    21.73 x                                     1.30 x
                                                                                                                                                                           Quic kTime™ and a
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General Dynamics                            GD                           $84.06                          $35,277.0                                  1.47 x              11.50 x
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                                                                                                                                                                                                       13.15 x    18.37 x         Quic kTime™ and a
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Lockheed Martin                            LMT                          $108.70                          $47,307.0                                  1.19 x              10.03 x
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                                                                                                                                                                                                       11.97 x    17.71 x         Quic kTime™ and a
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                                                                                                                                                                                                                                                              6.53 x
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Norhtrop Grumman                           NOC                           $78.50         dec ompress or
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                                                                      Summary (5):
                                                                         High                            $47,307.0                                  1.47 x              12.59 x                        14.98 x    21.73 x                                     6.53 x
                                                                     Upper Quartile                      $38,284.5                                  1.45 x              11.77 x                        13.61 x    19.21 x                                     4.24 x
                                                                       Median                            $32,787.0                                  1.32 x              10.77 x                        12.56 x    18.04 x                                     2.54 x
                                                                     Lower Quartile                      $30,069.0                                  1.15 x               9.81 x                        11.86 x    17.68 x                                     1.52 x
                                                                         Low                             $29,385.0                                  1.00 x               9.14 x                        11.55 x    17.61 x                                     1.30 x

                                                                                                                                                             Implied Enterprise Multiples                         Implied Equity Multiples
                                                                                                                                                    1.32 x              10.77 x                        12.56 x    18.04 x                                     2.54 x

                                                                            Current Valuation                                                                 Implied Enterprise Value                              Implied Stock Price
Alliant Techsystems                        ATK                          $112.19                            $5,209.0                             $4,708.4               $4,521.5                        $4,269.7   $98.78                                      $42.10
FCF Valuation
  Historical Data For:                         Forecast Horizon                                      10 Years
  ALLIANT TECHSYSTEMS INC
  Most Recent Fiscal Year End:       3/31/05   This Year's ROE (%)                                    24.49%
  Average ROE (last five years)      24.52%
  Sales Grow th (last five years)    19.66%    Terminal Year's ROE (%)                                23.54%

  Forecast Data:                               This Year's Sales Grow th (%)                          17.07%
  Forecast Horizon                  10 Years
  This Year's ROE                    24.49%    Terminal Year's Sales Growth (%)                         4.00%
  Terminal Year's ROE                23.54%
  This Year's Sales Grow th          17.07%    Cost of Equity Capital (%)                               9.00%
  Terminal Year's Sales Grow th       4.00%
  This Year's Forecast EPS             $4.90   Estimated Price/Share                                  $152.91
  Forecast 5 Year EPS Grow th        15.12%

  Valuation Data:                              Sensitivity analysis allow s you to assess the impact of changing key
  Cost of Equity Capital              9.00%    assumptions on the estimated price per share. Note that the sensitivity
  Valuation Date                    10/21/07   analysis uses a linear smoothing algorithm to compute ROE and Sales
  Estimated Price/Share              $147.59   Grow th betw een the current year and the terminal year, so it may
  Estimated Price/Earnings Ratio       30.11   provide a different price estimate from your detailed analysis even
  Estimated Market/Book Ratio           8.01   w ith the same key forecasting assumptions.
Debt Issue



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Debt Issue (cont)




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Recent
News/Developments
• 10/3/2007- ATK announces the hiring of Michael
  Bloomfield, a former NASA astronaut and deputy director of
  NASA flight operations, has been named Vice President,
  Constellation Systems in its Launch Systems Group.
  Additionally, Bloomfield will head the new company facility in
  Houston.

• 10/2/2007- ATK has successfully tested the first series of space
  parachutes for NASA’s Ares 1 program which is designed to
  carry humans to the moon.

•   *Yahoo Finance
News (cont.)
•   10/1/2007- ”Alliant Techsystems announced today that Brian Cullin has
    joined the company as Senior Vice President, Corporate
    Communications, reporting to Chairman and CEO, Dan Murphy. Mr.
    Cullin brings 30 years of national and international communications
    experience to ATK, serving at the most senior levels of the White
    House, National Security Council, and Department of Defense. He
    most recently was the Director of Communications for Foreign Policy
    Studies at the Brookings Institute, one of the nation's premiere think
    tanks.”

•   *Yahoo Finance
Analyst Recommendations
• Mean Recommendation - 2.3
• Mean 1 yr. Target - $117.70
• From last month to this month analyst
  sentiment has not changed with 4
  recommending Strong Buy, 2 Buy, and
  8 Hold.
• It’s position with institutional buyers
  has largely remained unchanged
  recently with only a slight increase in
  purchasers.
Analyst Recommendation (cont)




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Summary and Conclusions
• The recent hirings provide ATK with
  veritable advantages in gaining new
  government contracts.
• Given its size relative to the major
  competitors in the industry, financially
  ATK is strong.
• Their debt situation is a result of
  research and development expenditures
  and acquisitions, but with stable credit
  ratings and the possibility of a rate cut
  in the future, this may be a non-issue.
Summary (cont.)
• The models indicate that ATK may be
  undervalued and the stock performance
  has been historically strong.
• In addition to its primary munitions
  business, ATK is somewhat hedged
  through its other business lines.
• Its corporate governance is strong and
  we feel that the stock stays in line with
  the Socially Responsible Investment
  clause.
Recommendation
• BUY
• With the sale of Ceradyne, SMIP is
  lacking an aerospace/defense
  company
• The stock is relatively speculative
  in nature and can fit in well with
  our Mega-Cap portfolio

								
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