here is that report
Price: $23 9/16
Estimates (Dec) 1998A 1999E 2000E
EPS: d$0.18 d$1.12 1.02
P/E: NM NM 23.1x
EPS Change (YoY): NM NM
Consensus EPS: d$0.93 $1.21
(First Call: 15-Jul-1999)
Q EPS (Sept): $0.21 d$0.23
Cash Flow/Share: $1.68 $2.34 $3.96
Price/Cash Flow: 14.0x 10.1x 6.0x
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
Opinion & Financial Data
Investment Opinion: D-2-1-9
Mkt. Value / Shares Outstanding (mn): $989.6 / 42
Book Value/Share (Mar-1999): $13.37
Price/Book Ratio: 1.8x
LT Liability % of Capital: 33.6%
Stock Data
52-Week Range: $45 5/16-$17 3/8
Symbol / Exchange: ORB / NYSE
Options: Chicago
Institutional Ownership-Spectrum: 36.1%
Brokers Covering (First Call): 10
Investment Highlights:
· After disappointing prior quarters, Q2
marked progress in nearly every business.
· The company reported an EPS loss of ($0.27),
$0.02 better than consensus and our estimate.
· Infrastructure operating margins improved
from 8.6% in Q1 to 8.9% in Q2, slowly
returning to previous margin levels.
· Magellan losses continued at ($0.03) per share,
but management expects 2 nd half profitability.
· ORBCOMM orders reached 116,000 units
with 10% installed, passing management's
target of 100,000 with 10% installed.
· The only disappointment came in a 1-2
quarter delay for the in-service of Orbview 3
from its previously planned Q1 2000 date.
· Based on slightly lower expected ARPU at
ORBCOMM, we are lowering our 1999
estimated EPS loss from ($1.11) to ($1.12).
· We maintain our i.t. Accumulate and l.t. Buy
rating with a 12-18 month price objective of
$51, based on a sum-of-the-parts valuation.
Fundamental Highlights:
· The company projects 150,000 terminal orders
by Q3, with a 20%, or 30,000, installed base.
Orbital Sciences Corp – 29 July 1999
2
Q2 Progress First Step To Realizing
Substantial Value
After several disappointing quarters, Oribital Sciences
finally reported Q2 results on its quarterly conference call
yesterday that marked good progress in every business.
We view this as a first step to begin recognizing the
substantial value that Orbital's shares could achieve if the
company executes consistently.
The company reported EPS at a loss of ($0.27), $0.02
better than consensus and our estimate. Based on lowering
expected ARPU at ORBCOMM, however, we have
revised our projections for the year down slightly from a
loss of ($1.11) to a loss of ($1.12).
Slow Infrastructure Margin Improvement
Infrastructure generated EPS of $0.45 for the quarter,
$0.03 better than our $0.42 estimate. Operating margins
improved from 8.6% in Q1 to 8.9% in Q2, substantiating
the slow return to previous margin levels. Prior year's Q2
operating margins were 10.7%. The lower gross margins
this year are primarily due to the Japanese BSAT-2 DBS
satellite contract, for which Orbital must sub-contract
launch services due to the heavy weight of the satellite.
Such subcontracting typically carries quite low margins.
Higher costs in the Transportation Management Division
and cost over-runs have also contributed to margin erosion
the past 2 quarters.
Margins are beginning to improve as the company wins
new higher margin contracts. The integration of the Spar
Aerospace acquisition, which should add $50 M to $60 M
of annual revenue beginning in Q3 1999, should also
contribute to margin improvement. Fully recovering to
prior margin levels may be difficult however, due to
pricing pressure in the small GEO market, where the
company is trying to break-in against established makers
such as Hughes.
Magellan Profits Expected By Q3
Magellan losses continued at a loss of ($0.03) per share
compared to our projected loss of ($0.02). Management
expects this unit to be profitable by Q3, largely due to
revenues from the Hertz joint venture coming on line.
Other new products introduced in Q1 are beginning to
show progress, but more slowly than expected.
Contributions from the Lowrance acquisition should kick-in
starting Q4. Annual revenues for Lowrance have been
approximately $90 M, with approximately $55 M coming
in the first half and $35 M coming in the second half of the
year, respectively. One-time charges of up to $10 M could
be taken in Q4 to account for consolidating manufacturing
at Lowrance's new Mexican facility, while closing
Magellan's California and Taiwan facilities. We have
excluded these from our operating projections.
Satellite Services Exactly in Line
With Our Estimate
Satellite services generated losses of ($0.69), exactly in
line with our estimate. ORBCOMM losses were bigger
than originally expected due to higher growth, which we
anticipated. ORBCOMM EPS came in at a loss of ($0.55).
ORBIMAGE posted a loss of ($0.02) although total
backlog for the quarter exceeded $475 M. The one main
disappointment on the call was the announced launch
delay of Orbview 3 by 1-2 quarters from its planned Q1
2000 in-service date. Orbview 4 is still scheduled for
launch in mid-2000, and Radarsat 2 in early 2001.
ORBNAV and other minority interests came in at a loss of
($0.12). The company has begun installing the first of
50,000 units to go in Hertz rental cars, and are anticipating
a major Hertz ad campaign to go in effect in September.
ORBCOMM Orders Surpass
Internal Targets
ORBCOMM terminals installed or on order in Q2 reached
116,000 units with about 10% installed, passing
management's target of 100,000 with 10% installed.
ARPU came in at $15, which was significantly lower than
expected, however, is a direct result of the segment mix of
users. The company success on the trucking side has
resulted in a high concentration of lower trucking ARPU
of $15. Other segments have been slow to develop, but
can support significantly higher ARPU. ARPU for the oil
and gas segment can be as high as $100, for messaging
(not available until later) around $30, rail car around $20-
$22 and meter reading around $5-$6. Consequently, the
mix of segments will directly affect average ARPU going
forward. If meter reading, for example, which is projected
in the millions of units, begins to take off, ARPU may drop
significantly, but with the effects offset by higher volume.
Management expects a blended ARPU rate of about $16-
$17 in 1999, $19-$21 in 2000 and long-term ARPU to
average $18-$20.
Management is targeting 150,000 cumulative terminal
orders by Q3, with an installed base of 20%, or 30,000.
Given the company has already received a Q3 order for
approximately 30,000 from J.B. Hunt, achieving the order
target should be easy, however, more than doubling the
current installed base of 11,000 should be a challenge.
The installation rate for the Schneider order, for instance,
is expected to be 43,000 terminals over 13 months, or only
about 3,300 per month. Management projects 200,000
orders with a 50% installed base of 100,000 by the end of
1999, and 750,000 orders and an installed base of 60%-80%,
or 450,000 to 600,000 terminals in service by 2000.
We believe find these installed base targets aggressive, but
they should support substantial share price appreciation
and an ORBCOMM IPO if achieved.
Orbital Sciences Corp – 29 July 1999
2
Q2 Progress First Step To Realizing
Substantial Value
After several disappointing quarters, Oribital Sciences
finally reported Q2 results on its quarterly conference call
yesterday that marked good progress in every business.
We view this as a first step to begin recognizing the
substantial value that Orbital's shares could achieve if the
company executes consistently.
The company reported EPS at a loss of ($0.27), $0.02
better than consensus and our estimate. Based on lowering
expected ARPU at ORBCOMM, however, we have
revised our projections for the year down slightly from a
loss of ($1.11) to a loss of ($1.12).
Slow Infrastructure Margin Improvement
Infrastructure generated EPS of $0.45 for the quarter,
$0.03 better than our $0.42 estimate. Operating margins
improved from 8.6% in Q1 to 8.9% in Q2, substantiating
the slow return to previous margin levels. Prior year's Q2
operating margins were 10.7%. The lower gross margins
this year are primarily due to the Japanese BSAT-2 DBS
satellite contract, for which Orbital must sub-contract
launch services due to the heavy weight of the satellite.
Such subcontracting typically carries quite low margins.
Higher costs in the Transportation Management Division
and cost over-runs have also contributed to margin erosion
the past 2 quarters.
Margins are beginning to improve as the company wins
new higher margin contracts. The integration of the Spar
Aerospace acquisition, which should add $50 M to $60 M
of annual revenue beginning in Q3 1999, should also
contribute to margin improvement. Fully recovering to
prior margin levels may be difficult however, due to
pricing pressure in the small GEO market, where the
company is trying to break-in against established makers
such as Hughes.
Magellan Profits Expected By Q3
Magellan losses continued at a loss of ($0.03) per share
compared to our projected loss of ($0.02). Management
expects this unit to be profitable by Q3, largely due to
revenues from the Hertz joint venture coming on line.
Other new products introduced in Q1 are beginning to
show progress, but more slowly than expected.
Contributions from the Lowrance acquisition should kick-in
starting Q4. Annual revenues for Lowrance have been
approximately $90 M, with approximately $55 M coming
in the first half and $35 M coming in the second half of the
year, respectively. One-time charges of up to $10 M could
be taken in Q4 to account for consolidating manufacturing
at Lowrance's new Mexican facility, while closing
Magellan's California and Taiwan facilities. We have
excluded these from our operating projections.
Satellite Services Exactly in Line
With Our Estimate
Satellite services generated losses of ($0.69), exactly in
line with our estimate. ORBCOMM losses were bigger
than originally expected due to higher growth, which we
anticipated. ORBCOMM EPS came in at a loss of ($0.55).
ORBIMAGE posted a loss of ($0.02) although total
backlog for the quarter exceeded $475 M. The one main
disappointment on the call was the announced launch
delay of Orbview 3 by 1-2 quarters from its planned Q1
2000 in-service date. Orbview 4 is still scheduled for
launch in mid-2000, and Radarsat 2 in early 2001.
ORBNAV and other minority interests came in at a loss of
($0.12). The company has begun installing the first of
50,000 units to go in Hertz rental cars, and are anticipating
a major Hertz ad campaign to go in effect in September.
ORBCOMM Orders Surpass
Internal Targets
ORBCOMM terminals installed or on order in Q2 reached
116,000 units with about 10% installed, passing
management's target of 100,000 with 10% installed.
ARPU came in at $15, which was significantly lower than
expected, however, is a direct result of the segment mix of
users. The company success on the trucking side has
resulted in a high concentration of lower trucking ARPU
of $15. Other segments have been slow to develop, but
can support significantly higher ARPU. ARPU for the oil
and gas segment can be as high as $100, for messaging
(not available until later) around $30, rail car around $20-
$22 and meter reading around $5-$6. Consequently, the
mix of segments will directly affect average ARPU going
forward. If meter reading, for example, which is projected
in the millions of units, begins to take off, ARPU may drop
significantly, but with the effects offset by higher volume.
Management expects a blended ARPU rate of about $16-
$17 in 1999, $19-$21 in 2000 and long-term ARPU to
average $18-$20.
Management is targeting 150,000 cumulative terminal
orders by Q3, with an installed base of 20%, or 30,000.
Given the company has already received a Q3 order for
approximately 30,000 from J.B. Hunt, achieving the order
target should be easy, however, more than doubling the
current installed base of 11,000 should be a challenge.
The installation rate for the Schneider order, for instance,
is expected to be 43,000 terminals over 13 months, or only
about 3,300 per month. Management projects 200,000
orders with a 50% installed base of 100,000 by the end of
1999, and 750,000 orders and an installed base of 60%-80%,
or 450,000 to 600,000 terminals in service by 2000.
We believe find these installed base targets aggressive, but
they should support substantial share price appreciation
and an ORBCOMM IPO if achieved. |
