For nearly two years, shares of rocket maker Orbital Sciences (ORBI) have been hovering between 16 and 18. But that may be about to change. Joan Lappin, president of Gramercy Capital Management, says: "Orbital's management is doing an excellent job of building value, and one of these days, the stock will explode to the upside." She sees it hitting 30 in 12 months and 50 in 24 months.
What's fueling her optimism? This time it's isn't just the brightening fundamentals. Along with Prudential Securities aerospace analyst Gary Reich, she's convinced Orbital has become buyout bait.
"Orbital is succeeding amazingly well in trying to commercialize space on a shoestring budget," says Lappin. The company builds low-cost rockets, satellites, earth stations, and handheld "global positioning communicators." NASA recently placed a $70 million order for Orbital to build, with Rockwell International's help, a reusable, low-cost launch vehicle.
Lappin thinks Rockwell may try to buy Orbital, at 40 a share. Reich agrees, although he thinks the buyout price could be closer to 50. If Rockwell buys Orbital, Rockwell "would again capture the leadership in space it once had," says Reich. Rockwell was the leading producer of manned space systems, such as Apollo and the Space Shuttle. "It now finds itself in the embarrassing position of having to go to Orbital to build the [low-cost] X-34 shuttle, because NASA feels Orbital has the inside track," says Reich.
Another possible suitor, according to Reich is McDonnell Douglas, which also found a need to team up with Orbital. When NASA asked for bids for its new "Medlite" launch system, he recalls, McDonnell needed Orbital's skill to make bid. Rockwell and McDonnell declined comment as a matter of policy.