You probably saw the picture on the front page of every newspaper in the country this morning, or at least caught the video on YouTube…
An Antares rocket, bound for the International Space Station (ISS), exploded shortly after leaving the launch pad on Tuesday evening.
Luckily, it was an unmanned rocket, and no one was hurt on the ground. Additionally, the ISS is well supplied to withstand a cargo delivery delay.
So while the astronauts may not get the Halloween treats that were on board the supply ship, they’re not in any danger.
The same can’t be said of Orbital Sciences (ORB), though.
The company made the Antares rocket – and predictably, the stock is getting crushed today, as the media savages the firm, as well as the entire philosophy of private space launches.
Is the panic justified?
Don’t Believe the Hype
Clearly, the right time to sell an airline or spaceship company stock is the day before a crash, not after.
But obviously, it’s impossible to predict such events… and investors are dumping shares now because they believe Antares is a flawed vehicle.
This is harsh.
Antares has had four successful launches. Plus, no one definitively knows what caused yesterday’s launch failure… and selling on partial information is rarely a good idea.
That said, investors are also concerned about Orbital’s upcoming merger with Alliant Techsystems’ (ATK) launch business.
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You see, Alliant and Orbital plan to combine their aerospace businesses into a new company. The merger was supposed to close by the end of the year, but executives recently said the deal may not conclude until January because of regulatory delays.
But in light of yesterday’s rocket failure, could the merger be called off altogether?
Possibly… but the United States (and other governments) needs Orbital around to maintain robust competition for launch vehicles and spacecraft.
Meanwhile, the Financial Times seems to suggest that the government will reconsider privately contracting space launches.
The fact is, launch vehicles and spacecraft have always been built by private contractors. Alan Shepherd even joked to reporters that his rocket was built by the lowest bidder way back in 1961. So even if the government retakes control of flight management – which is unlikely – companies like Orbital will still make the machines.
Therefore, even after the crash, the merger makes sense for Alliant, Orbital, and the government.
But does that mean Orbital is a good investment?
Invest If You Dare…
Ultimately, it’s hard to recommend this company for long-term investors. With revenue flat for five years, Orbital has had trouble creating momentum. Plus, it faces fierce new competitors like Elon Musk’s SpaceX.
Yesterday’s crash certainly won’t help its prospects, either.
Therefore, long-term investors should wait until the merger occurs to see what the combined Alliant-Orbital partnership can do.
On the other hand, traders with strong stomachs could make some money by jumping into a contrarian trade and buy shares amid today’s panic selling. Soon, this failure to launch will be in the past, and investors will again focus on whatever they liked about Orbital before the crash.