Last week, the defense sector was quite lively with contracts pouring out of the Pentagon’s funding list. Apart from a major award going to General Dynamics GD, Rockwell Collins COL and Harris Corp. HRS for developing new radios, Huntington Ingalls Inc. (HII) secured a $205.1 million modification contract for the second year of advance planning of the refueling complex overhaul of USS George Washington (CVN 73).
General Dynamics’ Land Systems has been awarded a $101.8 million modification contract for Stryker garrison/deployment maintenance and field service representative support.
In a final note on the Q4 earnings season, Orbital ATK Inc. OA came up with forecast beating earnings.
(Read Defense Stock Roundup for Feb 23, 2016 here.)
Recap of the Week’s Most Important Stories
1. The U.S. Army has handpicked three defense contactors to provide it with tactical radios. These three contractors – General Dynamics, Rockwell Collins and Harris Corp. – received a major $12.7 billion, 10-year contract to develop new radios. The companies have been selected for the first phase of the Army’s Manpack radio modernization program, as well as for providing accessories and related services for Product Manager Handheld, Manpack and Small Form Fit/Project Manager Tactical radios. The contract will run through Mar 2026 (read more: General Dynamics, Rockwell, Harris Win $12.7B Army Deal).
2. Orbital ATK reported fourth-quarter 2015 adjusted earnings of $1.45 per share, outpacing the Zacks Consensus Estimate of $1.09 by 33% and increasing 15.1% from the comparable year-ago period. The company’s total revenue of $1,137 million also surpassed the Street expectation by 2.5% and improved 1.9% year over year. The company’s Defense Systems Group registered an approximately 5% decline in quarterly revenue, which was more than offset by positive contributions from Space Systems Group and Flight Systems Group. Orbital ATK ended the fourth quarter with $122.2 million and the year with $290 million of free cash flow.
The company expects 2016 earnings of $5.25–$5.50 per share on revenues of $4,575–$4,650 million. Free cash flow is expected to be between $275 million and $325 million for the year.
3. Lockheed Martin’s LMT Aeronautics division received a major contract from the U.S. Navy for recurring logistics sustainment services support for delivered F-35 Lightning II aircraft. It is a modification contact, worth $769.5 million, for the clients covering the Air Force, Marine Corps, Navy, non-Department of Defense participants, and foreign military sales customers.
Lockheed Martin will provide ground maintenance activities; action request resolution; depot activation activities; Automatic Logistics Information System operations and maintenance; reliability, maintainability and health management implementation support; supply chain management; and activities to provide and support pilot and maintainer initial training. The contract will run through Dec 2016.
4. Rockwell Collins has acquired the Matrix series projector product lines from Christie Digital Systems to strengthen its simulation and training solutions for military and aviation customers. The financial terms of the deal were not disclosed.
Christie will continue to manufacture the projectors with system engineering, integration and support provided by Rockwell Collins. Moreover, Rockwell Collins will provide service and support for Matrix projectors and all future Matrix offerings.
5. After the two defense heavy weights, Boeing BA and Lockheed Martin, lost their challenge to the Pentagon’s selection of Northrop Grumman NOC to manufacture Long Range Strike Bomber valued at about $80 billion, Boeing officials have told the U.S. Air Force that the company will take no further legal action to challenge the award.
Meanwhile, Boeing named Leanne Caret as the chief executive officer of its defense and space division, effective Mar 1, 2016. The current CEO of the division Chris Chadwick took over just two years ago when Dennis Muilenburg, now the CEO of the company, was moved to the chief operating officer position. As per media rumors, the change at the top of Boeing’s defense and space unit was due to the loss of the bomber contract. The bomber is one of the biggest Air Force contracts at least for the next few years.
Boeing also secured a 276.3 million modification contract from the U.S. Navy for the production and delivery of two full-rate production Lot III P-8A Multi-mission Maritime Aircraft. Work is slated to be completed in Feb 2019.
6. Raytheon Company RTN has won a $270.5 million modification contract from the U.S. Navy to exercise fiscal 2016 options for the production of Standard Missile-6 and spare requirements. The contracting activity is Naval Sea Systems Command, Washington, DC. With this modification, the total value of the contract has reached $573.2 million. The contract will use fiscal 2016 weapon procurement (Navy) funds (read more: Raytheon Wins $271M Navy Contract for Standard Missile-6).
Performance
The performance of the major defense stocks was positive barring Raytheon and Rockwell Collins Inc.. Boeing gained the most followed by Lockheed Martin.
The past six-month picture also remains fairly positive with more gains than losses. Raytheon gained the most while Textron Inc. TXT was the biggest loser, suffering an almost 14% depreciation.
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 |
1.05% |
7.42% |
|
BA |
1.09% |
-9.93% |
|
GD |
0.26% |
-4.75% |
|
RTN |
-1.09% |
20.20% |
|
NOC |
0.90% |
17.11% |
|
COL |
-1.72% |
5.81% |
|
TXT |
0.77% |
-13.91% |
|
LLL |
0.17% |
10.91% |
What’s Next in the Defense World?
Rockwell Collins will attend the J.P. Morgan Aviation, Transportation & Industrials Conference on Mar 8, 2016.
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