Aerojet Rocketdyne is heading back to space... with a bullet.
Yesterday, GenCorp revealed that its Aerojet Rocketdyne subsidiary has been chosen to develop and demo a new rocket engine for the U.S. Air Force. Specifically, GenCorp will build a "Medium Class Stage III motor" to replace the current batch of SR-73 third-stage motors that help lift Minuteman III Intercontinental Ballistic Missiles into space.
First deployed in 1970, the Minuteman III is starting to look a little bit long in the tooth. But with sentiment weighing heavily against nuclear proliferation these days, and budget constraints always looming, the Air Force would like to the costs of maintaining its nuclear deterrent force as low as possible. Much to Boeing's chagrin therefore (Boeing built the Minutemen), the Air Force is thinking that instead of building entirely new ICBMs, it might just upgrade the missiles' boosters instead, and hope that does the trick.
Hence, the Rocketdyne contract.
Financial details of the contract were not disclosed in Monday's release, though -- which poses a dilemma for investors: Even assuming GenCorp's engine passes muster, and the company wins a follow-on order to refurbish the Minutemen, how much might such a contract be worth to GenCorp?
Let's do a little back-of-the-envelope math, and see if we can't figure that out.
What we know
We know that the U.S. nuclear arsenal includes 450 Minuteman III ICBMs housed in missile silos throughout the American Midwest. We do not know precisely how much the engines on these missiles cost, or how much the Air Force is prepared to pay GenCorp to replace them.
We can estimate that cost, though, using published figures on the costs of other engines. For example, various sources put the cost of an RS-68 stage I booster at from $14 million to $20 million . Stage III engines are apparently pricier, with a Stage III RS-10 estimated at $38 million. Thus, the per-unit cost of GenCorp's new engine should fall somewhere within that range -- $14 million to $38 million.
It probably falls toward the high end -- but let's be conservative and just take a middle-of-the-range price -- say $26 million per new engine. Multiplied by 450 Minutemen, that works out to $11.7 billion in potential revenues for GenCorp, should it win a contract to upgrade the entire American ICBM fleet.
At the risk of stating the obvious, I'll come right out and say it: This contract could be a really big deal for GenCorp.
Just like Rocketdyne, we like things that go up
Tired of watching your stocks creep along at sea level, year after year? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks -- real live rocket stocks. And he wants to share his secret, along with a few of his favorite growth stock superstars, WITH YOU! It's all contained in a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.
The article GenCorp Stock Could Explode on New Nuclear Bomb Contract originally appeared on Fool.com.Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.