Already pulled into a low-earth orbit by earnings disappointments and accounting problems, shares of Orbital Sciences Corp. are dropping again because the company's low-earth-orbit satellite partnership is not hooking up customers as fast as expected.
Orbital stock fell to its lowest point in more than a year on Tuesday, closing at $17.56 1/4--down more than $5 in the last week and off $27 since January.
The stock recovered to $18.06 1/4 yesterday, but even analysts who rate the stock a "buy" say it is not likely to quickly recover recent losses, let alone return to the stratosphere.
"My sense is the stock languishes for a while," said Riyad Said of Friedman, Billings, Ramsey Group Inc. "We've seen some people bail out" of the stock, he added, because of "repeated disappointments over the course of this year, primarily related to Orbcomm."
Orbcomm Global L.P., a joint venture with Canada's Teleglobe Inc., is a low-cost, low-tech, low-orbit version of this year's most controversial communications concept: using constellations of satellites to build a worldwide network.
Though Said stressed that Orbcomm "isn't anything like Iridium," the firm nonetheless has been hurt by fallout from the bankruptcy filing of satellite-phone company Iridium LLC. Another satellite phone system, ICO Global Communications (Holdings) Ltd., is also under bankruptcy protection, and another, Globalstar Telecommunications Ltd., awaits federal licensing.
Orbcomm's ambitions are more modest than Iridium's. Orbcomm's satellites are designed to provide mobile two-way data and messaging services worldwide, sending, for instance, brief messages to pager-style receivers or monitoring the operation of a remote natural gas well.
Orbcomm recently said it has 23,000 units in operation after adding 10,000 in the last quarter, far short of the targeted 50,000 new accounts per quarter.
The trouble is that Orbcomm can sign up new clients much faster than it can actually hook them up. Analysts had predicted a lag of a month or two. But the delay is more like seven or eight months, because the installation and software customization are taking much longer than expected, Said said.
Those delays mean Orbcomm is generating revenue far more slowly than expected, while the massive overhead costs of the system continue. As a result of the losses, Said recently cut his estimate of Orbital's earnings for next year from $1.10 a share to 77 cents.
That's the net after Orbcomm's losses are deducted from the annual profit of $2 a share generated by Orbital Science's basic business--building and launching small satellites.
"The core infrastructure business is doing well," Said added. Order backlogs are at a record, and yesterday Orbital announced a $35 million contract to sell pictures taken by its newest imaging satellites.
Orbital recently signed a deal to supply 50,000 satellite navigation systems to Hertz rental cars, a step forward in turning around its Magellan Global Positioning Satellite navigation business, which also builds systems for boats, small planes and hikers. To bolster its marine sector, Magellan recently acquired Lowrance Electronics, a maker of fish finders, depth gauges and other pleasure boating equipment.
Ordinarily such positive developments might be expected to help Orbital's stock. But even if Orbcomm gets back on track, Orbital Sciences will have one more meteor shower to navigate: A series of lawsuits filed on behalf of shareholders this spring accusing the company of using aggressive accounting to inflate its earnings.
CAPTION: Orbital Sciences (This chart was not available)