Two weekends ago, I took a spontaneous road trip down to the Florida shore with an old friend of mine.
I’d like to be able to say we were there for the sand and sun, but our time was limited, and we had more important matters to deal with.
Rather than lounging on the beach with margaritas, we decided instead to grab a few bottles of brew and witness a piece of history: the first ever launch of a reusable space rocket:
If you’ve yet to view a rocket launch in your lifetime, I highly recommend it. Neither words nor photos can express the experience, though I met a few spectators who likened it to watching every firework display you’ve ever seen all at once.
I’ve met a few naysayers before, too — people who didn’t believe it was worth wasting their time to see a launch. Yet whenever I end up dragging any of these folks along, they can’t seem to shut up about how amazing the experience was the entire ride back home.
50 years ago, catching a rocket launch up close wasn’t nearly as convenient, but today it’s actually rather easy — Florida’s “Space Coast” has become a hot spot for public and private viewing, with as many as three rockets launching from the state in any given month.
This year, the number of global orbital launches will reach 89. That figure is the highest since the beginning of the millennium and close to the record launch numbers seen in the mid ’60s. At the same time, the U.S. is taking back a larger piece of the pie, accounting for more than 30% of 2014 launches compared to just 17% in 2012.
This time, though, it’s not NASA at the helm, but rather commercial companies leading this American space resurgence.
So even if you’re not interested in watching a rocket launch into orbit with 500 tonnes of ground-shaking thrust, there’s still plenty of reason to be excited about this industry as an investor.
Flying High
Across 2013, I recommended a total of six different space plays, from fuel providers all the way to the rocket manufacturers themselves. Despite the recently shaky macro market, all but one of these space stocks are trading up.
One of these plays, Astrotech Corporation (NASDAQ: ASTC), even hit gains as high as 296% within just three months.
Then there’s Orbital Sciences (NYSE: ORB), which recently hit a 62% gain from our initial recommendation, in part due to a 14% rally last Tuesday that led shares to a five-year high.
The rally came following the announcement of a $5 billion merger with aerospace and defense company Alliant Techsystems (NYSE: ATK) to form the newly named Orbital ATK.
Expected to close later this year, the merger should run quite smoothly. Orbital and ATK have been working closely together for the last two decades and are familiar with each other’s operations and work culture.
The move is being hailed by the mainstream media as the “biggest defense deal in years,” and for Orbital Sciences, this is certainly true. Combined revenue for Orbital ATK will be about $4.5 billion, of which ATK will contribute $3.2 billion.
In other words, the merger increases Orbital’s top line more than three-fold. With ORB shareholders expected to own 46.2% of the newly formed entity, the move certainly seems to be working in Orbital’s favor.
In addition to immediate revenue growth, Orbital ATK is expecting $585 million on the bottom line and up to $100 million annual in cost reduction synergies from the merger by 2016.
A Whole Different Planet
Perhaps a more important consideration than any of these figures, though, is how investors will now view Orbital’s role in industry. The move to join with ATK is undoubtedly beneficial in terms of image because it allows the company to separate itself from Elon Musk’s SpaceX, once a significant threat to Orbital’s business model and even the stock itself.
When SpaceX first docked with the International Space Station in 2012, investor sentiment sent Orbital shares down to a five-year low. Musk’s ambitions to create reusable rockets and drastically cut down on launch costs made the market reasonably wary of Orbital’s future.
Up until now, any positive news for SpaceX was viewed by the market as a negative for Orbital. The effect was enough to put a dent in shares anytime SpaceX received media praise — something that’s become quite the common occurrence.
The move to merge with ATK effectively removes Orbital from SpaceX’s shadow. It diversifies the company’s revenue stream and allows it to throw around more weight where it pleases.
Further, it increases Orbital’s space and defense capabilities by bringing ATK’s rocket propulsion systems into play and potentially removing the company’s reliance on expensive Russian engines.
Most importantly, the merger pushes Orbital out of SpaceX’s league and one step closer to industry giants like Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA).
2014 will continue to be a strong year, not only for Orbital but also for many lesser-known space companies trading on the public market.
Turning progress to profits,
Jason Stutman
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