Last week exemplified how defense majors are focused on enhancing their technological expertise and product offerings. Also, they can hardly ignore foreign military sales (“FMS”) fearing the gradual drying out of contract flow.
So far things haven’t turned out so badly with the U.S. Department of Defense approving the sale of 17 Chinook cargo helicopters to the Netherlands. Rockwell Collins Inc. COL expanded its periphery of Information Management Services by adding Singapore-based Pacific Avionics.
Elsewhere, Raytheon RTN approved a 10.7% annual dividend hike, marking the 11th consecutive rise. (Read Defense Stock Roundup for Mar 18, 2015 here.)
Recap of the Week’s Most Important Stories
1. The U.S. Defense Security Cooperation Agency (“DSCA”) approved a possible $1.05 billion FMS request to the Netherlands for 17 CH-47F cargo helicopters and associated equipment, parts, training and logistical support. The Boeing Co. BA would be the main contractor.
The Chinook cargo helicopters will help the country in troop movement, medical evacuation, aircraft recovery, parachute drop, search and rescue, disaster relief and fire-fighting besides lending heavy construction support.
The Boeing CH-47 Chinook is an American twin-engine, tandem rotor heavy-lift helicopter. Its speed of 170 knots is faster than other utility and attack helicopters. Its main functions include troop movement, artillery emplacement and battlefield resupply.
2. The DSCA has also notified Congress of a potential FMS of Sikorsky’s UH-60M Black Hawk helicopters and associated equipment to Mexico. Per this estimated $110 million venture, Sikorsky Aircraft Company in Stratford, CT and General Electric Aircraft Company in Lynn, MA will serve as the principal contactors. The sale is expected to increase and strengthen Mexico's ability to provide airlift support for its forces engaged in counter-drug operations.
The contractors will be responsible for the supply of three UH-60M Black Hawk helicopters in standard U.S. government configuration, with designated unique equipment, government furnished equipment, six T700-GE-701D engines, and six H-764G embedded global positioning system/inertial navigation systems to the Mexican government.
3. Raytheon Company won a $212.6 million U.S. Army contract modification for Patriot engineering service. Patriot is a long-range, high-altitude, all-weather system developed to counter threats from tactical ballistic missiles, cruise missiles and advanced fighter aircraft. This missile defense system was used during the 1991 Gulf War and the Iraqi War. The work on this contract is slated for completion by Jan 31, 2016.
Apart from that, the board of directors of Raytheon approved a 10.7% annual dividend hike, marking the 11th consecutive rise. The company increased the quarterly dividend to 67 cents per share from 60.5 cents, bringing the annualized payout to $2.68 per share. The dividend will be paid on Apr 30 to shareholders of record as of Apr 1 (read more: Raytheon Boosts Shareholder Value, Ups Dividend by 11%).
4. Rockwell Collins Inc. has expanded its portfolio of Information Management Services by adding Pacific Avionics, a Singapore-based company which specializes in developing technologies for wireless information distribution inclusive of in-flight entertainment and connectivity. With the acquisition of Pacific Avionics, Rockwell Collins looks forward to providing wireless distribution of digital information on board.
5. Huntington Ingalls Industries, Inc.’s HII unit − AMSEC LLC – won a U.S. Navy contract to provide support services for the Navy Modernization Program. With more than 34 years of experience, AMSEC is one of several awardees in this three-year, indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee contract. In particular, AMSEC will provide engineering and technical services for the modernization program. The estimated ceiling amount of AMSEC's contract is $83 million (read more: Huntington Ingalls Industries Unit Wins U.S. Navy Contract).
Performance
Defense stocks showed a bullish trend during the last five trading sessions barring Boeing, which lost 1.10%. Raytheon gained the most, followed by General Dynamics Corp. GD. The picture is more convincing in the past six months as none of the defense majors closed in the red. Northrop Grumman Corp. NOC secured the top spot, followed by Textron.
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 |
+1.12% |
+15.07% |
|
BA |
-1.10% |
+19.96% |
|
GD |
+1.30% |
+7.87% |
|
RTN |
+2.99% |
+11.70% |
|
NOC |
+0.97% |
+26.30% |
|
COL |
+1.41% |
+22.41% |
|
TXT |
+1.87% |
+23.54% |
|
LLL |
+0.51% |
+15.40% |
What’s Next in the Defense World?
In the next five days, no major development is expected on the defense front. Unless something untoward happens in the global markets, we believe that defense stocks will remain in trend.
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