Aviation Weekly & Space Technology magazine.
Folks, from time to time I like to look for companies in market sectors at the bottom of their cycle. And ya gotta admit, in looking across the aerospace market sector, that the sector is truly in a crater right now. Be that as it may, this commentary on page 15 of the above mentioned magazines November 8th issue, column labeled "Market Focus", caught my attention as I like to buy low......and sell high. Here's the article:
Don't look for any near-term recovery in Orbital Sciences Corp, which has been in the doldrums for months. Reason: Management plans to restate earnings for the last 10 quarters, from 1997 through the first half of 1999, and the non-cash changes will have an impact on the company's consolidated financials on a forward basis as well. Orbital also may be required to revise the valuation of its Magellan affiliate.
Driving the accounting changes, which belie a fundamentally strong and growing business, is a recent decision by Orbital's prior auditor(KPMG Peat Marwick) to retract earlier opinions. Merrill Lynch analyst Thomas Watts calls the development "one more unpleasant surprise," but otherwise expressed no great concern. "It may postpone the stock's appreciation, but with a couple of quarters of solid execution, the stock is poised for substantial appreciation from current levels," he said. "The company's assets are significantly undervalued."
In trading last Wednesday, the stock gained 3/16, to close at $13 15/16. Watts' 12-18-month price target is $51 a share. Some analysts believe it has the potential to climb to the low 60s, depending on the strength of the company's satellite-based Orbcomm data and messaging business.
As for the restatement, Watts thinks it's likely to be on the order of $60 Million in aggregate, spread relatively evenly during the last 2 1/2 months. It will have no effect on revenues, pre-tax earnings or operating income--only on the equity in net loss of affiliates and the capitalization of Orbital's interest in Magellan. Under the revised accounting, Orbital will recognize 100% of the net loss of its Orbimage operation. But, as Watts notes, this also implies that once Orbimage becomes profitable, Orbital can recognize 100% of the positive earnings. The company's current auditor, Price Waterhouse Coopers, raised questions earlier this year about the method by which Orbital accounted for its investment in Orbimage.
Yet another accounting issue at Orbital could have other repercussions beyond postponing the stock's recovery. "this latest fumble may add further pressure for management changes" in addition to the recen hiring of a new investor relations head and promotion of J.R. Thompson to chief operating office," Watts said.
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Just something to chew on. Bottom line? I can live with a stock appreciating to the mid $50's from the low teens in a two year time-frame.. Maybe it's time to jump in??
Regards!
John~ |
