Over the last five trading sessions, there has been a lull in the share prices of the defense primes.
Sikorsky Aircraft Corp. turned out to be a clear winner, securing an approximately $1.3 billion contract from the Pentagon. As for news from the war-torn Middle East, the White House requested for a separate war-fund to battle threats from the al-Qaeda connected Sunni militant group, the Islamic State in Iraq and Syria (ISIS).
(Read Defense Stock Roundup for Nov 4, 2014 for a recap.)
Iraq Update
As part of its proclaimed Inherent Resolve strategy, the U.S. military has conducted as many as 31 airstrikes against Islamic State (IS) forces in Iraq and Syria since Nov 14, 2014. These airstrikes were concentrated in the west and north of Iraq. In Syria, nine strikes were near the Turkish border city of Kobani while two others were near Dayr Az Zawr which hit an Islamic State crude oil collection facility destroying a tank.
Although president Obama vowed not to deploy U.S. ground troops into combat to fight Islamic State in Iraq and Syria, or ISIS militants, for the first time since the start of Operation Inherent Resolve strategy Obama indicated that possession of a nuclear weapon by ISIS could change his declaration.
Meanwhile, President Obama authorized the deployment of up to 1500 additional U.S. military personnel to train, advise and assist Iraqi Security Forces, including Kurdish forces.
Although the war against IS could only mean good news for the defense and aerospace industries, which have already cashed in on the lingering crisis, the rebel forces recently beheaded the American aid worker and former Army Ranger Peter Kassig, the latest in a series of executions of western prisoners, proving yet again the price paid by every war.
Recap of the Week’s Most Important Stories
1. Sikorsky Aircraft Corp., one of the operating segments of diversified business conglomerate United Technologies Corp. (UTX), received a pair of defense contract modifications worth a combined $1.3 billion from the U.S. military for helicopters and support functions. The contracts are part of the U.S. military’s fiscal 2015 purchases.
The $772 million award includes 41 UH-60M and 24 HH-60M helicopters and associated support functions. The second $535.3 million contract modification is for the Navy’s 4th program which entails 8 MH-60S and 29 MH-60R helicopters. This contract also includes related program management, systems engineering, provisioning, technical publications, and other integrated logistics support.
2. A General Dynamics Corp. (GD) unit − General Dynamics Land System-Canada − was awarded a $253.4 million (C$ 287 million) contract by the Canadian government to upgrade Canadian LAV III vehicles, also known as LAV 6.0 (read more: General Dynamics to Upgrade Canada's LAV III Vehicles).
3. Northrop Grumman Corp. (NOC) won a $210 million contract from the U.S. Air Force which continues its sustainment services of E-8C Joint Surveillance Target Attack Radar System (Joint STARS) fleet (read more: Northrop Wins U.S. Air Force Contract worth $210M).
Meanwhile, the Naval Air Systems Command awarded Northrop Grumman a contract to supply FlightPro Gen III mission computers for its UH-1Y and AH-1H aircraft.
4. The Obama administration requested Congress for a $5.6 billion budget amendment to conduct military operations against the IS. Of the total fund, $5 billion is planned for the Defense Department. That’s in addition to the Pentagon’s fiscal 2015 defense budget of about $554 billion, including a base budget of $496 billion and a war budget of about $59 billion. Congress hasn’t yet approved the spending plan for the fiscal year beginning Oct 1.
Performance
Though The Boeing Co. (BA), General Dynamics, Textron Inc. (TXT) and L-3 Communications Holdings Inc. (LLL) have traded in the green in the past five sessions, the magnitude of gains was muted. Boeing was up the most with just 2.44%.
In the past six months, all the major defense companies have traded in the green barring Boeing. General Dynamics gained the most with 23.72% share price appreciation.
The following table shows the price movement of the major defense players over the past five trading days and during the last six months.
|
Company |
Last Week |
Last 6 months |
|
LMT |
-0.86% |
+14.30% |
|
BA |
+2.44% |
-2.23% |
|
GD |
+0.53% |
+23.72% |
|
RTN |
-0.42% |
+8.00% |
|
NOC |
-0.69% |
+13.56% |
|
COL |
-1.73% |
+8.18% |
|
TXT |
+0.00% |
+6.50% |
|
LLL |
+0.96% |
+4.39% |
What’s Next in the Defense World?
We remind investors that the Zacks Industry Rank for aerospace/defense is within the top one-third of the list of 260-plus industries. Hence, the prospects of this industry are still very much in place. We, however, expect the slightly flat-to-bearish run of the defense stocks to persist in the coming days (to know more, please see: Zacks Industry Rank).
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