UPDATE: Cowen Sees Upside in Orbital-ATK (OA), Starts at Outperform

Cowen initiated coverage on Orbital-ATK (NYSE: OA) with an Outperform rating and a price target of $86, suggesting 17% upside. Analyst Gautam Khanna noted the company's strong cash flow and discount to large cap defense peers.

"Orbital ATK offers 13%+ EPS CAGR through C16E with hefty FCF gains, largely from the NASA Commercial Resupply Services (CRS) program, deal synergies, & share buybacks," said the analyst. "We initiate at Outperform with a $86 price target (8% C16E FCF yield), with potential to overshoot. Upcoming catalysts are many CRS risk retirement milestones through C17, the CRS recompete (by 9/30) & the May earnings call."

Khanna added, "We believe OA’s stock trades at a discount to large cap defense peers for three reasons. 1) Investor awareness of OA is low, as the firm was just formed on 2/8/15 via a merger of the ATK aerospace and defense segments with Orbital Sciences Corp. 2) OA had a launch failure on the CRS program in October 2014. The failure has reduced investor confidence in OA’s ability to execute on CRS 1, and heightened fears of a CRS 2 recompete loss. 3) OA has yet to report a quarter as a public company and has presented imprecise "pro forma" historical financials, making "deep dive" analysis difficult. However, as awareness broadens, the firm's high EPS/cash growth and compelling value should stand out in a value-starved defense tape, forcing a re-rating of the stock."

For an analyst ratings summary and ratings history on Orbital-ATK click here. For more ratings news on Orbital-ATK click here.

Shares of Orbital-ATK closed at $72.92 yesterday.

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