Foreign military sales or FMS in short hand dominated last week’s proceedings in the aerospace and defense space in spite of volatile trading sessions. Lockheed Martin LMT, along with its new member Sikorsky, was in the limelight grabbing major deals. Huntington Ingalls Industries Inc. HII also won a contract for building LPD 28.
On the other hand, United Technologies Corporation’s UTX unit – Pratt & Whitney – inked a historic contract with the Israeli Ministry of Defense.
(Read Defense Stock Roundup for Dec 1, 2015 here.)
Recap of the Week’s Most Important Stories
1. Lockheed Martin has nabbed a major $914 million contract from the U.S. Department of Defense (DoD) to upgrade the Republic of Singapore Air Force’s F-16 aircraft. According to the announcement, the fixed-price incentive and cost-plus contract, awarded under the U.S. Foreign Military Sales (“FMS”) program, is expected to be completed by Jun 30, 2023. Although the number of aircraft to be upgraded was not immediately known, the DoD notified Congress in 2014 that it had approved selling upgrades for 60 of Singapore's F-16s.
The prime defense contractor did not stop there. It won a big modification contract from the U.S. Air Force for its Joint Air-to-Surface Standoff Missile (JASSM) program. The contract also includes FMS to Poland and Finland. JASSM is a stealthy, precision-guided cruise missile with a penetrating blast-fragmentation warhead (read more: Lockheed Martin Wins $302M JASSM Modification Contract).
The company also received another major FMS contract from the U.S. DoD. This is again a modification contract, valued at $318.3 million for Hellfire II missile hardware/component production requirements, mainly for the Army, Air Force, and FMS allies comprising Korea, Egypt, Pakistan, Iraq, India, Saudi Arabia, Tunisia, and Indonesia. Work under this contract will be performed in Orlando and Ocala, FL, and Troy, AL, with an estimated completion date of Oct 31, 2018.
2. Sikorsky Aircraft Corp. – the newly acquired Lockheed Martin unit − secured a modification contract, worth $354.2 million, for 29 MH-60R helicopters. The contract was "for funding for the Navy's fifth program year" for the helicopters and to "fund associated program and logistics support." Work is expected to be completed by the end of 2017.
3. Newport News, VA-based Huntington Ingalls Industries Inc.’s shipbuilding division won a contract worth $200 million from the U.S. Naval Sea Systems Command of the District of Columbia to build LPD 28, the 12th amphibious transport dock of the San Antonio (LPD 17) class.
Per the contract, Huntington Ingalls will use the funds for purchasing long-lead-time material and major equipment, such as main engines, diesel generators, deck equipment, shafting, propellers, valves and other long-lead systems (read more: Huntington Ingalls Wins $200M US Navy Contract for LPD 28).
4. Pratt & Whitney, a unit of United Technologies Corporation, inked a historic contract with the Israeli Ministry of Defense (“IMOD”) to provide support to the Israeli Air Force — marking the longest-term, most comprehensive, performance-based logistics contract for its fighter engines to date. Pratt & Whitney will ensure 100% daily propulsion readiness for the whole Israeli fleet of F-15I and F-16I aircraft for the next 15 years under this fleet management program contract (read more: Pratt & Whitney Inks Historic 15-Year Contract with Israel).
5. General Dynamics Corporation GD announced that its board of directors has authorized the repurchase of an additional 10 million shares of the company’s issued and outstanding common stock in the open market. In the third quarter of 2015, General Dynamics repurchased 7.2 million shares for $1.04 billion.
This marks the second consecutive quarter in which the company repurchased more than 2% of its outstanding shares. Consequently, the share count fell 4.8% year over year (read more: General Dynamics Approves Additional $10M Share Buyback).
Performance
In the last five trading days, the major defense companies showed a mixed performance. Although Boeing, BA, Raytheon RTN, Northrop Grumman NOC and L-3 Communications Holdings LLL ended in the green, Lockheed Martin, General Dynamics, Rockwell Collins COL and Textron TXT were in the red zone. Raytheon gained the most, followed by L-3 Communications, while General Dynamics lost the most.
In the last six months, the picture seems to be a lot more reassuring with gains predominating over losses. Raytheon topped the list with over 27% share price appreciation followed by Northrop Grumman. Rockwell Collins and Textron 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 |
-0.49% |
17.43% |
|
BA |
0.48% |
6.88% |
|
GD |
-3.06% |
4.45% |
|
RTN |
2.14% |
27.46% |
|
NOC |
0.36% |
21.10% |
|
COL |
-1.23% |
-0.97% |
|
TXT |
-1.92% |
-6.26% |
|
LLL |
2.04% |
10.23% |
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. However, continuing geo-political uncertainties and the threat of terrorist attacks will keep defense stocks in focus in the near future.
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