“Although a good strategic fit for Orbital, we like the fact that management was unwilling to overpay for the acquisition,” Quilty said in a July 20 report.

   Overall, Orbital Sciences’ reported a solid second quarter in 2012, with earnings-per-share (EPS) of $0.25 and a 6 percent, year-over-year increase in quarterly revenues to $371 million. The company’s results beat analysts’ revenue forecasts of $361 million, primarily due to stronger-than-expected growth in its Advance Space segment. The business division reported a $33 million increase in CRS-related revenue compared to the same period last year.

   Orbital Sciences reiterated its full-year EPS guidance of $0.95-1.05, but lowered its revenue guidance due to the cancellation of NASA’s Gravity and Extreme Magnetism Satellite (GEMS) program and a delay in its Antares program.

   Quilty agreed with Orbital’s projection that the GEMS cancellation would represent a $20 million loss and that the snag in the Antares contract could cost the company between $5 million and $10 million. “Following several months of good progress, Orbital Sciences’ management revealed that its Antares program has once again been delayed,” said Quilty. “Management expects the initial test launch to now occur six to seven weeks later due to further delays in readying the launch pad. As a whole, these delays are par for the course, although it will have a top-line impact and delay the company’s realization of higher margins as evident in the lower revenue guidance.”

   Quilty and other analysts wondered how the GEMS cancellation would impact Orbital’s work on its Pegasus project. NASA announced in June that it was canceling the GEMS program due to cost overruns.

   “The satellite, which was intended to study black holes, could be reincarnated if Congress orders NASA to get back to work,” said Quilty. “The financial impact for Orbital will consist of a $20 million hit during the second half of 2012 and roughly $75 million in lost revenue between now and 2014. That lost revenue would be split 50/50 between the satellite and launch segments.”

   In its quarterly report, Orbital Sciences’ management noted that the company would take several months following the GEMS cancellation to determine if enough demand exists to maintain its Pegasus rocket product line. Pegasus was designed to serve as the launch vehicle for GEMS.

   Despite the setbacks, Quilty reaffirmed his ‘”outperform rating” on Orbital Sciences due to the company’s report being roughly in line with its second quarter EPS estimate and management affirming its 2012 guidance.

   “Orbital’s segment-level guidance was mixed, with a more robust Advanced Space forecast coupled with a weaker outlook for its launch and satellite segments,” said Quilty. “Overall, its results were solid and the company’s visibility is improving. However, the company’s stock still only trades at a multiple of 4.2 over our 2013 EBITDA estimate of $161 million, which well below the stock’s historical range of multiples between 5 and 11 during the past decade. Our $16 share price target assumes that Orbital Sciences can trade at a low-range multiple of 5.2 over our 2013 EBITDA forecast as the company makes headway with the Antares program later this year.”