Things were a little lull at the defense sector over the last five trading days with some of the major players gaining only slightly while others ending in the red.
Among the most important headlines, Northrop Grumman Corp. (NOC) caught most of the attention with the company securing a nearly $1 billion deal to support Minuteman III ballistic missiles. Textron Inc. (TXT) took over the Douglas Equipment business from Curtiss-Wright Flow Control (UK) Ltd., complementing its TUG brand. Boeing (BA) announced its exit from the commercial cybersecurity business.
(Read Defense Stock Roundup for Jan 13, 2015 for a recap.)
Iraq Update
Between Jan 13 and 16, 2015, the U.S. military has conducted over 62 airstrikes against Islamic State forces in Iraq and Syria. While 27 of these strikes were made in Syria, 35 of them were in Iraqi territory, all using fighter, bomber and piloted aircraft.
In spite of the Iraqi military forces being trained by U.S. military troops to combat the offensive against the Islamic State in Iraq and Syria militants, the country’s Shiite-led government is proving itself to be incapable of mounting a major offensive to recapture Fallujah in Iraq’s Anbar province or any of the key areas still held by the group.
The U.S. recently assigned advisers to Anbar province as part of its expanding training mission. Although things are appearing to be going well for the U.S.-led coalition as far as the air offensive is concerned having dropped over 1,700 bombs on Islamic State targets in Iraq and Syria, the skirmish on the ground reveals an entirely different story.
The lack of a political process to accompany the airstrikes with a ground policy is helping Sunni communities to consider allying with IS, especially in sensitive areas around Baghdad, as per media reports. Iraq’s vice-president for reconciliation, Iyad Allawi, said a lack of a political process between the Shias and Sunnis was a mistake that could mean the air attacks end up achieving little.
Recap of the Week’s Most Important Stories
1. Northrop Grumman Corp. grabbed a big award from the U.S. Air Force, worth $963.5 million, for the support of Minuteman III Intercontinental Ballistic Missile or ICBM Ground Subsystems. This is a significant win for Northrop Grumman as it edged out defense major Boeing, which has 55 long years of experience in ICBM development. Boeing too had competed for the support contract.
Meanwhile, Boeing has sought an explanation from the U.S. Air Force regarding the ICBM contract going to Northrop Grumman. The company will decide on whether to protest the contract award following a full briefing from the Air Force (read more: Northrop Wins ICBM Support Contract from U.S. Air Force).
2. Textron Inc.’s unit − Textron Specialized Vehicles − has acquired the Douglas Equipment business from Curtiss-Wright Flow Control (UK) Ltd., a subsidiary of Curtiss-Wright Corp. UK-based Douglas Equipment supplies ground support equipment to airline companies. Post acquisition, it will become a part of the Textron Specialized Vehicles group and will continue to manufacture from its UK facilities. Management expects the acquisition of Douglas Equipment to complement its TUG brand (read more: Textron Adds Douglas Equipment to GSE Portfolio).
3. The Boeing Company entered into an agreement with Symantec Corporation, under which the latter agreed to purchase technology rights from Boeing’s cybersecurity business unit, Narus Inc. Per the deal, Symantec will hire 65 engineers and data scientists from Boeing’s Narus security division. With its exit from the commercial cybersecurity business, Boeing now intends to focus solely on developing cybersecurity technology for its military and government customers (read more: Boeing to Exit from Commercial Cybersecurity Business).
4. Raytheon Company’s (RTN) Standard Missile-6 (“SM-6”) has been approved by the U.S. Navy to be carried by ships in the Aegis Combat Weapon System baselines 5.3 and 3.A.0 series. Raytheon has supplied over 130 missiles to the U.S. Navy. The recent approval from the U.S. Navy will increase the utilization of SM-6 from 5 to over 35 ships (read more: Raytheon's Standard Missile-6 Gets U.S. Navy's Nod).
5. AAR Corp.’s (AIR) Airlift unit won a contract from the United Kingdom Ministry of Defence for Search & Rescue (“SAR”) and Support Helicopter services in the Falkland Islands. The contract is valued at $275 million (approximately £180 million).
Per the contract, AAR Airlift with support from British International Helicopters and Air Rescue Systems will provide SAR and Support Helicopter service for British Forces South Atlantic Islands operations. AAR Airlift will use an unspecified number of AgustaWestland AW-189 SAR helicopters and Sikorsky S-61 support helicopters for conducting flight operations, maintenance, logistics and facilities support from the Mount Pleasant Complex in the Falkland Islands. The 10-year contract will commence in Apr 2016.
Performance
Overall, the performance of the defense stocks was mixed during the last five trading sessions. Though Lockheed Martin Corp. (LMT), General Dynamics Corp., Northrop Grumman, Rockwell Collins Inc. (COL) and Textron ended in the green, the gains were slender. On the other hand, Boeing, Raytheon and L-3 Communications Holdings ended in the red. The biggest gainer was Textron followed by General Dynamics.
The picture in the past six months was more convincing with none ending in the red. Lockheed Martin, Northrop Grumman, General Dynamics, Textron and Raytheon registered double-digit share price growth, with Northrop Grumman leading the way. Boeing much to investor relief gained 3.89% over the time frame reversing its losing spree.
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 |
+0.19% |
+20.69% |
|
BA |
-0.3% |
+3.89% |
|
GD |
+0.93% |
+19.78% |
|
RTN |
-0.4% |
+12.3% |
|
NOC |
+0.88% |
+25.11% |
|
COL |
+0.9% |
+8.12% |
|
TXT |
+1.04% |
+11.87% |
|
LLL |
-0.46% |
+4.2% |
What’s Next in the Defense World?
We are on the verge of the fourth quarter earnings season. Among the defense primes, Rockwell Collins Inc. is slated to report its first quarter fiscal 2015 numbers on Jan 23 before the market opens.
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