You Won't Hear Loral Singing The Pentagon Blues

When a company makes a secondary-share offering, its stock usually goes south, particularly if the shares being sold are owned by insiders. So when Loral, a high-tech company that makes electronic-warfare systems, offered 3 million shares at 53 3/4 on June 24, the Street expected the Big Board stock to dive--especially since the offered shares were owned by a group of Lehman Brothers partnerships. But instead of falling, the shares flew up, hitting a new high of 61 1/4 on July 12.

Considering that Loral's primary business is defense, with 80% of last year's revenues coming from the federal government, the stock's leap was quite a feat. But then, the stock had been climbing since January, when it traded at 46. What's the deal?

The simple answer, says Oppenheimer analyst Lior Bregman, is that Loral is a "very well-managed company capable of posting predictable, solid earnings that often exceed expectations." Its record over the past 15 years has been "unusually good, especially for a defense-related company," he adds. But wait--there's more.

The company is also widening its reach in satellite communications by expanding into the global cellular-telephone business. "One of our important projects is Globalstar," says Chairman and CEO Bernard Schwartz. The subsidiary will provide telecommunications services worldwide through 48 low-orbiting satellites and local-service telephone providers.

HELPING HANDS. Scheduled for a 1997 debut, Globalstar's system will enable subscribers to reach anybody around the world. Schwartz expects an initial sign-up of 5.6 million users. Loral has four European partners in its space-communications business, including France's Alcatel and Germany's Deutsche Aerospace. "Loral is positioning itself in the emerging areas of satellite, telephone, and TV broadcasting at relatively little risk," says Bregman. "Globalstar is Loral's wild card."

That doesn't mean Loral is cutting back on its military business, whose products include ships, satellite communications, and surveillance systems for aircraft, as well as tactical weapons, including those used in Desert Storm and the recent U.S. attack on Baghdad's intelligence headquarters. Despite the shrinking U.S. defense budget, Loral has been trying to beef up its core business, mainly through acquisitions. Recent buys include Ford's aerospace unit in 1991 and LTV's missile division in 1992. Loral sees another acquisition in 1993.

Kidder Peabody analyst Michael Lauer says there's "plenty of propellant left in the stock" despite its strong performance this year. He expects it to hit 75 over the next 12 months, based on his earnings estimates of $5.15 a share in the year ending Mar. 30, 1994, and $5.75 in 1995 vs. fiscal 1993's $4.62.

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