The shares of all big defense contractors suffered across the board over the last five trading sessions. The holiday spirit led to very few major events being reported in the defense space.
This did not deter Lockheed Martin Corp. (LMT) to end 2014 on an upbeat note with a big contract from the Pentagon’s funding list. The Boeing Company (BA) and its European archrival Airbus Group NV will jointly bid for the development of a new fighter aircraft for South Korea along with Korean Airlines.
(Read Defense Stock Roundup for Dec 22, 2014 for a recap.)
Iraq Update
As the U.S.-led campaign against Sunni militant group the Islamic State in Iraq and Syria (“ISIS”) grinds on, the U.S. military has conducted 20 airstrikes against Islamic State (“IS”) forces in Iraq and Syria, as reported on Jan 5, 2015. As part of its proclaimed Inherent Resolve strategy, the U.S. military has conducted these strikes – comprising 14 in Syria and 6 in Iraq – using fighter, bomber and remotely piloted aircraft.
Meanwhile, U.S. military troops have started training Iraqi military forces at two bases in Anbar and Taji in Iraq to combat the offensive against ISIS militants who overran part of the country last year.
President Obama announced plans on Nov 7, 2014, to almost double the number of U.S. troops in Iraq to over 3,000, adding the additional 1,500 military personnel to train nine Iraqi military brigades and three Kurdish peshmerga brigades.
Recap of the Week’s Most Important Stories
1. Lockheed Martin Corp. ended 2014 on an upbeat note with a big contract from the Pentagon’s funding list. The defense prime won a $662.0 million modification contract from the U.S. Air Force. Per the contract, Lockheed Martin will get funds for the procurement of two MC-130J, two HC-130J, three KC-130J, one C-130J, two U.S. Coast Guard HC-130J production aircraft, and 20 quick engine change assemblies (read more: Lockheed Martin Secures $662M U.S. Air Force Deal).
2. Raytheon Company’s (RTN) unit Raytheon Technical Services Co., LLC, (“RTSC”) received a contract worth $270.5 million from the U.S. Department of Defense (“DoD”). Per the contract, Raytheon will provide the DoD with V-22 software support activity (“SSA”) systems and software engineering along with other services like software testing, avionics integration and testing, and SSA operations (read more: Raytheon Wins DoD Contract Worth $270.5M for V-22 SSA).
3. The Boeing Company and its primary competitor Airbus Group NV will jointly bid for the development of a new fighter aircraft for South Korea along with Korean Airlines, their local partner. The group of three will likely be proposing Boeing’s F/A-18E/F Super Hornet as the base design for the country’s KF-X development program.
Boeing has partnered with Airbus in order to side-step U.S. government barriers on sharing technological know-hows with foreign countries. The company is partnering with Airbus so that its European counterpart can provide stealth technology for the aircraft. According to media reports, Boeing has been prevented from doing so.
The proposal is intended to be an “economical alternative” to an indigenous effort from Korea Aerospace Industries to develop a new fighter plane with technical assistance from Lockheed Martin Corp.
4. United Technologies Corp.’s (UTX) Sikorsky helicopter segment has reportedly put in bids for a $3 billion military tender from Poland. The tender involves the supply of 70 helicopters to the Polish military (read more: United Technologies' Sikorsky Bids for Polish Copter Deal).
Performance
All the big defense stocks have closed in the red over the last five days. The biggest loser was Northrop Grumman Corp. (NOC), followed by Lockheed Martin.
In the past six months, however, the picture remained more or less green. All the major defense companies reported gains barring Boeing. Lockheed Martin, Northrop Grumman, General Dynamics Corp. (GD) and Raytheon registered double-digit share price growth, with Northrop Grumman leading the way. Boeing’s 0.03% decline stood out.
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 |
-3.14% |
+19.58% |
|
BA |
-2.11% |
-0.03% |
|
GD |
-2.91% |
+17.11% |
|
RTN |
-2.97% |
+15.53% |
|
NOC |
-4.9% |
+19.37% |
|
COL |
-1.87% |
+5.82% |
|
TXT |
-3.12% |
+9.68% |
|
LLL |
-3.09% |
+3.99% |
What’s Next in the Defense World?
While sequestration is still holding off the defense sector, the Republican wins in the mid-term election, Middle East tensions, the Obama administration’s major realignment along with a rising U.S. economy may turn out to be blessings for this sector in 2015.
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