Share prices of the defense majors have bobbed up and down in recent times but they had little bearing on their ability to win contracts fairly regularly. Lockheed Martin’s LMT newly acquired member, Sikorsky, has already started to contribute to the top line with a major defense contract under its belt.
Shares of Lockheed Martin and Raytheon RTN lost 2.97% and 2.18%, respectively, on Nov 30, after being downgraded by Barclays. However, analysts at Barclays hold a neutral stance on the broader sector despite higher valuations as fears about increasing political unrest and terror attacks worldwide keep the demand for weapons at a high.
On the other hand, Barclays is bullish on General Dynamics Corp. GD as the brokerage firm believes that business jet related fears have dragged down General Dynamics’ valuation lately. Moreover, the Gulfstream business is benefiting from Bombardier’s liquidity struggles and delays at competitor Dassault.
(Read Defense Stock Roundup for Nov 24, 2015 here.)
Recap of the Week’s Most Important Stories
1. Lockheed Martin’s newly acquired helicopter unit, Sikorsky, clinched two major defense contracts, worth $939.8 million in total. A major $833.3 million modification contract was won for Army fixed engineering sustaining, and program management/systems engineering sustaining. Sikorsky will carry out most of the maintenance work at its Stratford, CT facilities over the next year. The contract is slated to run through Dec 31, 2016.
The second contract, worth $106.5 million, involves technical, engineering, logistics services and supplies, and 100% parts support for the H-60 weapons system. Work under this contract will be performed in Corpus Christi, TX, with an estimated completion date of Nov 30, 2016.
2. Meanwhile, Lockheed Martin said that it has received $279 million from the U.S. Navy in remaining funding for the construction of the future USS Cooperstown − the 23rd Littoral Combat Ship. This funding comes on top of $79 million in advanced procurement funding released to Lockheed Martin in Mar 2015. The Lockheed Martin-led industry team has already delivered three Freedom-variant littoral combat ships to the U.S. Navy.
3. A United Technologies Corp. UTX subsidiary, Pratt & Whitney, has been awarded a $214.6 million contract modification by the U.S. Navy to provide F-35 hardware sustainment services to domestic and foreign military customers. Under this cost-plus-incentive-fee and firm-fixed-price contract, Pratt & Whitney will provide support services for Low Rate Initial Production 10 propulsion systems as well as hardware and training course material and equipment. The United Technologies unit will perform the work under this contract at various facilities in Connecticut, Oklahoma and South Carolina as well as at air bases in Florida, California, Utah and Arizona through Apr 2019.
4. Boeing BA has received an indefinite-delivery/indefinite-quantity contract for sustainment support for the E-4B fleet. The contract is valued at $134 million. Boeing will provide program management, supply chain management, field service representatives, aircraft depot maintenance, and engine maintenance and overhauls. Work under this contract will be performed at Oklahoma City; and San Antonio, TX, and is slated for completion by Dec 30, 2016.
5. General Dynamics Corp.’s wholly owned subsidiary, Electric Boat, has secured a $102.8 million modification contract from the U.S. Navy to develop Virginia-class nuclear-powered attack submarines. Per the contract, Electric Boat will provide maintenance, research and development, and design improvements related to the submarines and evaluate the new technology for use in the newly built vessels. With this modification, the cumulative value of the contract, initially awarded in 2010, comes to $1.1 billion (read more: General Dynamics Unit Wins $103M U.S. Navy Contract).
Performance
In the last five trading days, the major defense companies mostly ended in the red but with one exception. L-3 Communications Holdings’ LLL shares depreciated the most, followed by Lockheed Martin. General Dynamics was the only firm to end in the green.
In the last six months, the picture seems to be a lot more reassuring with gains predominating over losses. Raytheon gained the most with about 22% share price appreciation followed by Lockheed Martin. Rockwell Collins COL and Textron TXT were in the red territory.
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 |
-2.33% |
18.17% |
|
BA |
-1.95% |
4.81% |
|
GD |
1.29% |
5.53% |
|
RTN |
-2.16% |
21.71% |
|
NOC |
-0.36% |
18.15% |
|
COL |
-1.34% |
-1.89% |
|
TXT |
-1.70% |
-5.56% |
|
LLL |
-2.86% |
5.15% |
What’s Next in the Defense World?
L-3 Communications, Rockwell Collins and Northrop Grumman will participate in the 2015 Credit Suisse 3rd Annual Industrials Conference today, while Lockheed Martin will attend the conference on Dec 2, 2015.
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