Foreign orders are ruling the defense space. The U.S. and India have signed a contract worth billions of dollars for Apache and Chinook helicopters, thereby stepping up military ties between the two nations.
Last week, Raytheon RTN scored big on the Pentagon’s funding list. Apart from clinching various foreign military sales (“FMS”) contracts, the missile maker was awarded a billion dollar contract from the Department of Homeland Security to protect U.S. agencies from cyber attacks.
The prime defense contractor – Lockheed Martin LMT – had some good news for its shareholders, boosting the dividend and share buyback plan.
However, on the not-so-good corner, AAR Corp. AIR came up with disappointing first-quarter fiscal 2016 results.
(Read Defense Stock Roundup for Sep 22, 2015 here.)
Recap of the Week’s Most Important Stories
1. The U.S. Department of Homeland Security (“DHS”) has entrusted Raytheon to help more than 100 civilian agencies manage their computer security, in a deal that could be worth $1 billion. Raytheon was selected as the prime contractor and systems integrator for the agency’s Network Security Deployment division and its National Cybersecurity Protection System. Though the contract runs for five years, some orders could extend up to an additional 24 months.
Apart from that, Raytheon has also been able to clinch big ticket programs, mainly FMS, from the Pentagon’s daily funding list. The missile maker received a $495.6 million contract from the U.S. Defense Logistics Agency for depot-level repairables and consumable spare parts. This contract has a three-year base period with one three-year option period. It will run through Sep 27, 2021.
Raytheon Missile Systems won a major award from the U.S. Navy for $264.8 million. The contract involves improvements to the AIM-9X air-to-air missile, for the U.S. Air Force, Navy and six FMS clients, namely, Korea, Singapore, Malaysia, Belgium, the Netherlands and Turkey. Another contract, worth $227 million, requires Raytheon’s Missile Systems division to produce 447 AIM-9X missiles (read more: Raytheon Scores Big Defense Contracts over $500M in Total).
2. On Sep 28, the U.S. and India inked a $3.1 billion deal for 22 Apache and 15 Chinook helicopters, taking the total worth of defense deals signed between the two countries well past $13 billion since 2007. Per the Indian Defence Ministry spokesperson Sitanshu Kar, the Chinook helicopter deal is a direct one with Boeing BA, while the one for Apache is a hybrid contract. A part of the Apache deal was signed with Boeing and the other with the U.S. government, under an FMS program.
The deliveries of the helicopters are set to begin in three years, said officials. The contract has an option for 11 more Apaches and 7 extra Chinooks.
3. General Dynamics Land Systems, a business unit of General Dynamics Corp. GD, has received a major $358 million contract for conversion of 150 M1A1 vehicles to the M1A1 situational awareness configuration. This is essentially an FMS contract headed for Morocco. Work will be carried out in Lima, OH, and is slated for completion by Feb 28, 2018.
4. Lockheed Martin Corp. has increased its quarterly dividend by 10%, bringing the annualized payout to $6.60 per share from $6.00 per share earlier. This is the 13th consecutive annual double-digit increase in Lockheed Martin’s quarterly dividend rate. Along with that, this defense behemoth has also increased its share repurchase authorization by $3 billion.
In another business development, Lockheed Martin Mission Systems and Training unit of Manassas, VA won a contract from the U.S. Navy for support services of the AN/BVY-1 Integrated Submarine Imaging System. The contract is worth $120.4 million (read more: Lockheed Martin Clinches $120 M U.S. Navy Contract).
Again, with respect to the Lockheed Martin-Sikorsky deal, U.S. officials approved Lockheed Martin’s acquisition of Sikorsky Aircraft from United Technologies Corp., per the company’s Sep 24 report to the U.S. Securities and Exchange Commission.
5. Aerospace and defense products and services supplier, AAR Corp. missed the Street Consensus on both earnings and revenues in first-quarter fiscal 2016. The top and the bottom line also declined year over year. Weakness was mainly attributed to the supply chain business, which was once its growth engine. The company’s parts trading business saw lackluster demand in the quarter and faced some inventory challenges on certain programs (read more: AAR Corp. Misses Q1 Earnings and Revenue Estimates).
Performance
In the last five trading days, share prices of all the major defense companies were down except for Raytheon. Boeing lost the most, followed by L-3 Communications Holdings Inc. LLL.
In the last six months, the picture remains mixed with more losses than gains. Although share prices of Lockheed Martin, General Dynamics and Northrop Grumman showed muted growth, Boeing, Raytheon, Rockwell Collins, Textron and L-3 Communications ended in the red.
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 |
-1.69% |
0.52% |
|
BA |
-4.37% |
-12.81% |
|
GD |
-2.06% |
1.05% |
|
RTN |
1.97% |
-2.60% |
|
NOC |
-2.97% |
2.36% |
|
COL |
-2.98% |
-16.10% |
|
TXT |
-2.70% |
-15.08% |
|
LLL |
-3.86% |
-17.72% |
What’s Next in the Defense World?
In the next five days, no major development is lined up on the defense front. We note that defense stocks have been experiencing volatility with gains and losses in recent months and investors can expect this volatile movement to continue in the coming days as well.
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