The Dow Jones U.S. Aerospace & Defense index, which measures the stock performance of U.S. companies in the Aerospace & Defense sector, as well as S&P 500 Aerospace & Defense index declined 1.19% and 1%, respectively, in the last five trading sessions compared with a decline of 0.38% for Dow and 0.61% for the S&P 500.
In spite of lackluster market sessions, there has been a series of contract wins along with investor friendly moves last week. Among the notable wins, Lockheed Martin (LMT) received a modification contract for procuring long-lead materials for the C-130J, while Boeing (BA) clinched regulatory approval to sell nine P-8A aircraft to the UK.
(Read Defense Stock Roundup for Mar 22, 2016 here.)
Recap of the Week’s Most Important Stories
1. Prime defense contractor Lockheed Martin Corp. has received a major U.S. Air Force contract for C-130J military transport aircraft. The Pentagon awarded a $1.53 billion contract to Lockheed Martin to procure titanium and other long-lead materials required to build 28 C-130J military transport aircraft.
This modification contract is part of a $5.3 billion multi-year contract for 78 C-130J Super Hercules that was awarded to Lockheed Martin last December. The latest modification contract would fund 28 C-130Js models comprising 14 typical C-130J, 8 MC-130J special operation variants, and 5 search-and-rescue HC-130J variants (read more: Lockheed Receives $1.53B C-130J Super Hercules Contract).
Apart from this billion dollar contract, Lockheed Martin also secured a $179.9 million modification contract from the U.S. Navy to continue procurement of F-35 aircraft parts. The U.S. Department of Defense (DoD) last week said that this modification builds on the advance acquisition contract awarded in Dec 2015 for long-lead-time materials, components and parts for the low-rate initial production of Lot 11 F-35s. Lockheed Martin will also provide support for 15 additional F-35A variant units for the U.S. Air Force and 10 more F-35B variant aircraft for the U.S. Marine Corps.
The work is slated to be completed by Dec 2019 and will be carried out in the U.K., Italy and in Texas, California, Florida, New Hampshire and Maryland in the U.S.
2. The Boeing Co. received approval from the U.S. government to sell up to nine P-8A Poseidon maritime surveillance aircraft to the UK. Estimated to be worth $3.2 billion, this deal is part of Britain’s five-year plan, announced in Nov 2015, to increase spending by $16.96 billion to $251.60 billion over the next decade.
The U.S. Defense Security Cooperation Agency announced approval of the pending foreign military sales on Mar 25, just four months after British Prime Minister David Cameron announced the P-8A plan as part of a $270 billion investment in new military hardware.
This deal is vital for Britain as these jets will improve its national defense capabilities and contribute to North Atlantic Treaty Organization and coalition operations.
Britain has maintained its core skills in maritime patrol and reconnaissance through personnel exchange programs after it retired the Nimrod aircraft. UK forces were left to work on the U.S. Navy P-8A aircraft (read more: Boeing Gets U.S. Nod for $3.2B Poseidon Sale to UK).
Meanwhile, this defense major also secured a contract from the U.S. Army for the full-rate production of the Lot 7 Apache helicopter. The contract is worth $184.9 million (read more: Boeing Wins $185M Defense Contract for Apache Helicopters).
3. Alliant Techsystems Operations, a unit of Orbital ATK Inc. OA and Chemring Military Products have received contracts worth $750 million from the U.S. Army for non-standard ammunition and non-standard mortar weapon systems, as per the DoD.
The U.S. Army is currently focused on a major force build-up aimed at speedily supplying the European Command (EUCOM) of the U.S. armed forces. The U.S. Army aims to replace its legacy M224 mortars with the enhanced M224A1, which was introduced into service in 2011. The latter is 20% lighter than the old models.
4. General Dynamics Corporation’s GD business unit, Land Systems Inc., has won a contract from the U.S. Army to continue work on Stryker ground combat vehicles. The contract is valued at $549.9 million and the contracting activity is Army Contracting Command, Warren, MI.
Stryker is an eight-wheeled combat vehicle that is lighter, smaller and more readily deployable than other Army combat vehicles. It provides Combatant Commanders with a tactically deployable (C-17/C-5) and operationally deployable (C-130) brigade that can move anywhere in the world swiftly in a combat-ready configuration (read more: General Dynamics Unit Wins $550M U.S. Army Contract).
5. Aerospace and defense products and services supplier, AAR Corp. AIR, reported third-quarter fiscal 2016 (ended Feb 29, 2016) earnings of 26 cents per share, missing the Zacks Consensus Estimate by 3.7%. Quarterly earnings also plunged 72.6% from the year-ago level of 95 cents.
Although missing the Street expectation by 2.9%, the company’s consolidated sales improved 6% year over year primarily due to higher contribution from its Aviation Services segment (read more: AAR Corp Q3 Earnings Miss Estimates, Revenues Lag).
6. Raytheon Company's RTN board of directors has approved a 9.3% hike in the annual dividend to $2.93 from $2.68 per share. The board has also authorized the payment of a quarterly cash dividend of 73.25 cents per outstanding share of common stock, to be paid on May 12 to shareholders of record as of the close of business on Apr 6. This marks the 12th consecutive annual increase by the company.
Performance
Defense stocks were off their mark in the past five trading sessions. The biggest loser, with more than 3% depreciation, was Boeing followed by General Dynamics Corp.
The past six-month picture remains fairly positive with gains from almost all barring General Dynamics and Textron TXT. Northrop Grumman Corp. NOC gained the most while Textron was the biggest loser, with nearly 4% 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 |
-0.99% |
11.05% |
|
BA |
-3.36% |
4.05% |
|
GD |
-2.94% |
-2.19% |
|
RTN |
-0.95% |
17.15% |
|
NOC |
0.36% |
20.83% |
|
COL |
-0.76% |
16.42% |
|
TXT |
-0.91% |
-3.79% |
|
LLL |
-0.08% |
17.81% |
What’s Next in the Defense World?
Nothing major is lined up in the coming week.
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