It was more about strategic acquisitions or divestitures for the defense companies over the past five trading days. United Technologies Corporation UTX has plans to spend more than $1 billion on acquisitions with strong growth potential this year. The conglomerate even made a special mention of a potential spin-off of Sikorsky. Rockwell Collins Inc. COL wrapped up the sale of ARINC Aerospace Systems Engineering and Support to Field Aerospace.
Among the other important updates, AAR Corp. AIR expects results to fall short of expectations in its third-quarter fiscal 2015. On the other hand, soon after its formation, the board of directors of Orbital ATK, Inc. OA announced its plan to pursue several investor-friendly initiatives.
(Read Defense Stock Roundup for Mar 10, 2015 here.)
Recap of the Week’s Most Important Stories
1. United Technologies announced that it is contemplating strategic alternatives for its Sikorsky helicopter unit, in the first significant move made by the company's new chief executive officer Gregory Hayes to revamp the conglomerate's portfolio.
They even mentioned a tax-free spin-off of the helicopter manufacturer might be in the cards. Sikorsky, which generates about two-thirds of its sales from U.S. defense contracts, did not measure up to the performance of the other units of the company, according to Hayes (read more: United Technologies to Spin off Black Hawk-Maker Sikorsky?).
In a much-awaited annual investor and analyst meeting last week, the conglomerate declared that it is inclined to spend over $1 billion on acquisitions this year, as it scours for targets with strong growth potential (read more: UTX's Overhaul: Spinoff, $1B in Acquisitions).
2. Rockwell Collins Inc. concluded the sale of ARINC Aerospace Systems Engineering and Support (ASES LLC) to Field Aerospace, a subsidiary of the privately held U.S. firm, Field Aviation Inc. Since the ARINC acquisition, Rockwell Collins has sold one small business unit – the 10-person Industry Standards Organization based in Annapolis – to SAE International of Warrendale, PA.
The company was looking for a buyer suitable for ASES as the unit did not fit in with its long-term strategy (read more: Rockwell Collins Closes ARINC Aerospace Systems Sale).
3. AAR Corp. − aftermarket product and service provider to the global aerospace/aviation industry − provided a disappointing insight into its third-quarter fiscal 2015 results. According to AAR Corp., reductions in both flight hours and flying positions have cost the company nearly $7.6 million in operating profit in the third quarter ended Feb 28 as compared to the previous quarter (read more: AAR Corp. Provides Interim Insight into Q3FY15 Results).
4. The Boeing Co. BA received a follow-on contract for additional work on CH-47 helicopters for the U.S. Army. This modification contract is valued at $713.9 million. The Boeing CH-47 Chinook is an American twin-engine, tandem rotor heavy-lift helicopter. Its speed of 170 knots is faster than other existing utility and attack helicopters. Its main functions include troop movement, artillery emplacement and battlefield resupply. The latest contract covers 26 remanufactured CH-47Fs, 4 new CH-47s, and an option for 2 additional helicopters (read more: Boeing Wins $714M Chinook Helicopter Deal from US Army).
5. Northrop Grumman Corp. NOC won a Navy contract wherein it is entitled to exercise the option for the procurement of two Ground/Air Task-Oriented Radar (“G/ATOR”) low-rate initial production (“LRIP”) systems. If the option is exercised, the number of G/ATOR LRIP systems to be supplied by Northrop will number six (read more: Northrop Grumman Wins $113.3M U.S. Navy Modification Deal).
Performance
Defense stocks showed a bullish trend during the last five trading sessions. Rockwell Collins gained the most, followed by Raytheon Co. RTN. The picture is even brighter in the past six months. Rockwell Collins once again grabbed the top spot, followed by Northrop Grumman.
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 |
+1.75% |
+12.23% |
|
BA |
+2.21% |
+20.94% |
|
GD |
+1.38% |
+4.59% |
|
RTN |
+3.46% |
+8.12% |
|
NOC |
+1.98% |
+21.57% |
|
COL |
+4.55% |
+22.55% |
|
TXT |
+2.79% |
+19.06% |
|
LLL |
+1.55% |
+9.51% |
What’s Next in the Defense World?
In the coming five days, no major development is expected on the defense front. Unless there is a major mayhem in the global market, we believe that defense stocks will continue to remain in trend.
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