Dear Thread, I have lurking for awhile and have appreciated the DD and the sharing that you all have demonstrated. I have been in the process of researching a particular company and although I AM interested in the product line, management, and industry I find myself questioning some of the basic financial fundamnetals of the company. I am most concerned about recent accounting results and my ability to interpet them. The reason I thought this thread may have an interest is that the underlying growth prospects seem to have put this high growth NYSE stock in a value range.
stock closed @ 24 1/2 - 1999 concensus earnings $1.61 - 2000= $2.40 - estimated growth 50% a year for 5 years. 4 Billion dollar backlog up 22% . Lots more
The stock is Orbital Sciences
Here is a link to 2 motley fool articles on the company (thru SI)
Message 8037889
and a recent report from Merrill on some restatements of my concern
Price: $29 5/8 (24 1/2 now)
12 Month Price Objective: $55
Estimates (Dec) 1998A 1999E 2000E
EPS: d$0.18 $1.39 NA
P/E: NM 21.3x NM
EPS Change (YoY): NM NM NM
Consensus EPS: $0.58 $1.46 NA
(First Call: 16-Feb-1999)
Cash Flow/Share: $1.67 $3.53 NA
Price/Cash Flow: 17.7x 8.4x NM
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
Opinion & Financial Data
Investment Opinion: C-1-1-9
Mkt. Value / Shares Outstanding (mn): $1,303.5 / 44
Book Value/Share (Sep-1998): $12.20
Price/Book Ratio: 2.4x
LT Liability % of Capital: 22.1%
Est. 5 Year EPS Growth: 53.3%
Stock Data
52-Week Range: $50-$17 3/8
Symbol / Exchange: ORB / NYSE
Options: Chicago
Institutional Ownership-Spectrum: 38.2%
Brokers Covering (First Call): 7
ML Industry Weightings & Ratings**
Strategy; Weighting Rel. to Mkt.:
Income: Underweight (28-Jan-1999)
Growth: Overweight (07-Mar-1995)
Income & Growth: Overweight (07-Mar-1995)
Capital Appreciation: Overweight (14-Feb-1995)
Market Analysis; Technical Rating: Average (26-Oct-1998)
**The views expressed are those of the macro department and do not
necessarily coincide with those of the Fundamental analyst.
For full investment opinion definitions, see footnotes.
Investment Highlights:
· After delaying releasing results, the company
announced an extensive restatement, reducing
1998 earnings from what would have been a
profit of $0.86 to a loss of $0.18.
· We think there could be some near-term
weakness based on these developments.
· Despite the earnings surprise, Orbital's
fundamentals remain very strong, in our view.
We continue to value the business at $55 by
yearend 1999.
· Company currently trading at only on 13.4x
our est. EPS for Infrastructure division alone.
· We are maintaining our Buy ratings.
Fundamental Highlights:
· Without accounting changes, company would
have posted profit of $0.23 for Q4, ahead of
our $0.20 estimate, and an annual profit of
$0.86 versus our estimate of $0.82.
Orbital Sciences Corp – 18 February 1999
2
Company Posts an Earnings
Disappointment, But Fundamentals
Remain Strong
Orbital announced 1998 results that surprised investors.
EPS for the year came in at a loss of $0.18 per share. This
compares to consensus estimates of a profit of $0.67 as of
February 10, prior to the announcement of any accounting
charges and consensus estimates of a profit of $0.58 on
February 12 after the company announced there would be
accounting charges.
The stock could be weak on this news, however, we are
maintaining our Buy ratings. The company's
fundamentals remain sound, in our view.
Additional Accounting Charges
Our previous notes outlined planned accounting charges of
$5M at MacDonald Dettwiler due to a contract extension
and $6.5 M at Magellan due to a change in accounting
policy writing off product development. The company
announced these Wednesday, February 3. At the same
time, the company postponed their earnings release until
yesterday.
Yesterday the company announced total after-tax charges
for 1998 of $1.04 per share. These came from three
sources: 1) An after-tax charge of $18.8 M from contract
adjustments in the Infrastructure division, similar to those
at MacDonald Dettwiler, that resulted from re-amortization
of profits over longer contract periods as a result of
contract extensions. 2) An after-tax charge of $6.93 M
derived from the prior $6.5 M of product write-offs plus
additional inventory reserves of $4 M at Magellan related
to potentially obsolete products. 3) An after-tax charge of
$9.8 M due to changes at ORBCOMM in the recognition
of up-front license fees on international franchise
agreements.
Without these charges, EPS would have been $0.23 for the
quarter and $0.86 for the year. This compares to our
estimates of$0.20 for the quarter and $0.82 for the year,
prior to making adjustments on February 3. With the
adjustments, EPS came in at a loss of $0.53 for Q4 and a
loss of $0.18 for the year.
Division Results
Infrastructure EPS posted EPS for the year at $1.41.
Without adjustments, it would have been $1.91 compared
to our estimate of $1.89.
Access Products EPS posted EPS for the year at a loss of
$0.44. Without adjustments, it would have been a loss of
$0.23 compared to our estimate of a loss of $0.20.
Satellite Services EPS posted EPS for the year at at a loss
of $1.14. Without adjustments, it would have been a loss
of $0.80 compared to our estimate of $0.94.
Detail on consolidated results before and after the charges
appears in a table below.
Upcoming Quarters Should
Restore Confidence
We expect the upcoming quarters. to show strength. As
these results become clear investors should develop
restored confidence.
But the Stock Appears
Undervalued
We recently raised our estimate of EPS for the
Infrastructure division to $2.17 per share for 1999. The
entire company is currently trading at only 13.4x the
earnings for this division alone. We value this division at
$37 per share. We continue to value ORBCOMM and
ORBIMAGE at a combined value of more than $18 per
share. All indications suggest these businesses should
maintain consistent development during 1999. Our
yearend 1999 valuation remains $55, based on a sum-of-the-
parts. Accordingly, we maintain our Buy ratings.
Fundamentals Remain Strong
Revenue growth and margins in the Infrastructure business
remain robust. ORBCOMM terminal growth appears on
track. We understand ORBCOMM terminals finished
1998 with 32,000 terminals. As of 2/1 ORBCOMM
terminals ordered total 45,000, with 37,000 sold to
customers. This rate would put the company on track to
exceed 200,000 units by yearend. Only slight acceleration
would be needed to reach the company's 250,000 terminal
yearend target.
Orbital Sciences Corp – 18 February 1999
3
Table 1: 1998 Orbital Sciences Financial Results:
Restatement and Accounting Adjustment Impacts
Income From Income Before Net Diluted
Revenues Operations Taxes Income EPS
Grid wouldnt fit the numbers represent respectively
REVENUES
INCOME FROM OPERATIONS
INCOME BEFORE TAXES
NET INCOME
DILUTED EPS
First Quarter
Without Accounting Adjustment $186,159,000 $16,047,000 $7,243,000 $ 6,519,000 $0.20
With Accounting Adjustment $186,159,000 $13,365,000 $5,828,000 $4,745,000 $0.13
Change $ - $(2,682,000) $(1,415,000) $(1,774,000) $(0.07)
Second Quarter
Without Accounting Adjustment $184,516,000 $9,438,000 $8,244,000 $7,419,000 $0.21
With Accounting Adjustment $184,516,000 $ 8,251,000 $7,220,000 $5,998,000 $0.17
Change $- $(1,187,000) $(1,024,000) $ (1,421,000) $(0.04)
Third Quarter
Without Accounting Adjustment $193,488,000 $16,103,000 $9,567,000 $8,611,000 $0.21
With Accounting Adjustment $187,688,000 $ 9,292,000 $ 3,262,000 $2,436,000 $0.06
Change $ (5,800,000) $(6,811,000) $(6,305,000) $(6,175,000) $(0.15)
Fourth Quarter
Without Accounting Adjustment $185,914,000 $15,385,000 $8,980,000 $7,939,000 $0.23
With Accounting Adjustment $175,914,000 $ (5,615,000) $(18,139,000) $(19,551,000) $(0.53)
Change ($10,000,000) ($21,000,000) ($27,119,000) ($27,490,000) ($0.76)
Full Year
Without Accounting Adjustment $749,277,000 $53,293,000 32,401,000 29,161,000 $0.86
With Accounting Adjustment $734,277,000 $25,293,000 $(1,829,000) $(6,372,000) $(0.18)
Change ($15,000,000) ($28,000,000) ($34,230,000) ($35,553,000) ($1.04)
[ORB] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
regulated by SFA, and has been considered and issued in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law. The information herein was
obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side
of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may from
time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced
by the currency of the underlying security, effectively assume currency risk.
Should it prove of interest to the thread I will give some insight to the company and recent events. Thank you all in advance. |
