It was a gloomy week with most of the major defense companies trading in the red. The only bright spot was a billion-dollar Foreign Military Sales (“FMS”) contract approved by the U.S. Defense Security Co-operation Agency (“DSCA”).
Sikorsky Aircraft and Lockheed Martin Corp. LMT are the contractors. In another not-so-good development, Lockheed Martin came across trouble once again with its F-35 Lightning II Joint Strike Fighter (“JSF”). A Lockheed Martin executive, however, assured that the system is on track to be delivered in late June or early July.
Northrop Grumman Corp. NOC investors were nonetheless appeased by a 10 cent quarterly hike in the dividend. Incidentally, Northrop was the only company to report in the green over the last five trading sessions.
(Read Defense Stock Roundup for May 13, 2015 here.)
Recap of the Week’s Most Important Stories
1. The Royal Saudi Navy is seeking to buy 10 Sikorsky MH-60R Sea Hawk helicopters for $1.9 billion as part of the Navy's eastern fleet major modernization program. This is the first military purchase since the U.S.-GCC summit in Washington held this month.
The DSCA has approved the sale of Multi-Mode radars, 24 T-700 GE 401 C engines, 12 APX-123 Identification Friend or Foe transponders, 14 Multi-Spectral Targeting Systems Forward Looking Infrared Radars, 26 Embedded Global Positioning System/Inertial Navigation Systems with Selective Availability/Anti-Spoofing Module, 1000 sonobuoys, 38 Hellfire II missiles, 5 Captive Air Training missiles, 380 Advanced Precision Kill Weapons System rockets and crew served weapons.
The principal contractors will be Sikorsky Aircraft Corp., a unit of United Technologies Corp. UTX and Lockheed Martin Corp.
2. Lockheed Martin Corp.’s 5th Generation stealth fighter − F-35 Lightning II JSF – is never far from trouble. Currently, the portable version of the F-35 fighter jet's automated logistics system is facing a relatively “minor" problem.
Lockheed Martin executive − Jeff Streznetcky − in charge of the logistics system known as Autonomic Logistics Information System or ALIS, revealed that the company is working on it to fix the software and the system is on track to be delivered in late June or early July. Management did not, however, reveal particular details about the problems spotted with the latest ALIS software, version 2.0.1, which has been tested since late April (read more: Lockheed: Minor F-35 Problem Won't Delay Summer Launch).
3. Pentagon’s prime contractor – Lockheed Martin – however clinched a satellite contract, worth $735.5 million, from the U.S. Air Force. Per this cost-plus-incentive-fee contract, the company will provide support and maintenance services for military communication satellites − Advanced Extremely High Frequency, Milstar and Defense Satellite Communications System III − for the U.S. Air Force (read more: Lockheed Martin Wins $735M U.S. Air Force Contract).
4. Northrop Grumman Corp. announced an increase in its quarterly dividend rate by 14.3%. The revised quarterly dividend will be 80 cents, payable on Jun 17, 2015, to shareholders of record at the close of business on Jun 1, 2015 (read more: Northrop Grumman Boosts Annual Dividend by 14%).
5. United Technologies Corp.’s Pratt & Whitney's Military Engines unit was awarded a $105 million federal contract modification by the U.S. Air Force Research Laboratory, Wright-Patterson Air Force Base, Ohio, for adaptive engine technology development. Work under this contract is slated to be over by Nov 12, 2017.
Performance
Most defense companies saw share losses over the past five trading sessions. The only exception was Northrop Grumman Corp. that gained 1.25%. Boeing BA lost the most followed by Rockwell Collins Inc.
The picture in the past six-month period is mixed. Rockwell Collins and Northrop Grumman have been able to register double-digit gains with the former leading the march. However, General Dynamics Corp. GD failed to end in the green and so was L-3 Communications Holdings LLL.
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 |
-0.11% |
3.72% |
|
BA |
-1.30% |
8.94% |
|
GD |
-0.46% |
-2.68% |
|
RTN |
-0.33% |
1.28% |
|
NOC |
1.25% |
14.74% |
|
COL |
-1.17% |
15.53% |
|
TXT |
-0.66% |
4.89% |
|
LLL |
-0.59% |
-2.19% |
What’s Next in the Defense World?
Lockheed Martin, Boeing, General Dynamics will attend Bernstein's 31st Annual Strategic Decisions Conference on May 27, 2015. Northrop Grumman will also attend the conference on May 28.
Raytheon Company’s RTN 2015 Annual Meeting of Shareholders will be held on May 28, 2015.
Newly formed Orbital ATK Inc. will report fourth-quarter fiscal 2015 results on May 28 before the market opens.
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