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Defense Stock Roundup: Lockheed Martin Scores Big; Boeing, Textron, General Dynamics Make a Mark

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With Donald Trump considering James Mattis as the new defense secretary, securities in the Aerospace and Defense sector scaled higher last week, buoyed by the reputation the retired U.S. Marine Corps General has in Capitol Hill. In addition to this, a generous flow of contracts from the Pentagon kept the sector on its toes.

Consequently, major indices for the aerospace and defense sector ended in the green during the trailing five sessions. While the S&P 500 Aerospace & Defense (Industry) index gained 0.7%, the Dow Jones U.S. Aerospace & Defense Index rose 1.8% last week.

Among last week’s highlights, Pentagon’s largest defense contractor Lockheed Martin Corp. LMT stole the limelight with a handful of big wins. Defense majors like The Boeing Company BA, Textron Inc. TXT, Harris Corporation HRS, General Dynamics Corp. GD and United Technologies Corporation UTX also clinched a number of important contracts from the Pentagon.

(Read Defense Stock Roundup for Nov 17, 2016 here.)


Recap of the Week’s Most Important Stories

1. Lockheed Martin’s Aeronautics business division secured a huge modification contract worth $7.19 billion for the F-35 Lightening II Joint Strike Fighter aircraft. The original advance acquisition contract involved low-rate initial production of the Lot 10 F-35 Lightening II jets. Work related to this deal is expected to be over by Mar 2020.

Per the terms of the contract, Lockheed Martin will procure 90 jets, comprised 76 F-35As for the U.S. Air Force, non-U.S. Department of Defense (DoD) participants and Foreign Military Sales (FMS) customers; 12 F-35Bs for the Marine Corps and non-U.S. DoD participants; and two F-35Cs for the Navy. Notably, Lockheed Martin’s F-35 Lightning II is the fifth-generation, single-seat, single-engine fighter aircraft, equipped with an advanced stealth feature. Notably, it is the world's largest defense program.

The Aeronautics business division nabbed another contract, worth $1.2 billion for upgrading the Korean F-16 fighter jets. Work related to the deal is scheduled to be over by Nov 15, 2025.

Originally manufactured by General Dynamics, F-16 became part of Lockheed Martin after it acquired the former’s aircraft manufacturing business. The combat-proven F-16 falcon is a multi-role fighter jet, which currently serves 28 nations. The latest and most advanced version – F-16V – is the fourth generation of the F-16 fleet, which comes with an advanced, high-resolution radar system. (Read more: Lockheed Martin Clinches $1.2B FMS Deal for Korea's F-16)

Meanwhile, Lockheed Martin’s Rotary and Mission Systems business division won a modification contact worth $77.2 million for upgrading the Aegis Combat System. Per the terms of the deal, as the Aegis Combat System Engineering Agent, Lockheed Martin will provide design, development, integration, test and delivery of computer program baselines and associated technology insertion hardware design support for future capability enhancements of the Aegis System. Work is scheduled to be over by Dec 2017.

Lockheed Martin’s Aegis Ballistic Missile Defense (ABMD) is the naval component of the U.S. Missile Defense Agency's (MDA) Ballistic Missile Defense System (BMDS). It is the world’s only maritime BMDS that can simultaneously attack land targets, submarines and surface ships. (Read more: Lockheed Martin Nabs $77M Deal for Aegis System Upgrade)

2. Bell-Boeing, a strategic joint venture (JV) between aircraft major Boeing and diversified U.S. conglomerate Textron’s wholly owned subsidiary, Bell Helicopter – recently secured a modification contract worth $267.3 million. Per the terms of the deal, the JV will offer additional joint performance-based logistic support to the Marine Corps’ MV-22, and the Air Force and Special Operations Command’s CV-22 jets. Work related to the deal is scheduled to be over by Nov 2018.

Bell-Boeing’s key product is V-22 Osprey, a joint service multirole combat aircraft that utilizes tiltrotor technology to combine the vertical performance of a helicopter with the speed and range of a fixed-wing aircraft. CV-22 and MV-22 are two variants of the V-22 jets. With rapid rise in terror attacks in recent times, Pentagon has been allocating substantial funds to the defense contractors for enhanced security of the country. With no improvement expected in the geopolitical situation at present, defense majors like Boeing and Textron, to name a few, are poised to gain substantially. (Read more: Bell-Boeing JV Wins $267M Navy Deal for CV-22, MV-22 Jets)

3. Another defense behemoth General Dynamics’ Land Systems business division grabbed a foreign military sales (FMS) contract worth $65.3 million. Per the terms of this deal, General Dynamics will offer contractor logistic support and training services for Iraq’s M1A1 tanks and M88A2 recovery vehicles.

Work related to this agreement is scheduled to be over by Dec 31, 2017. The contract was awarded by the Army Contracting Command, Warren, MI, and will utilize fiscal 2010 other funds.

Also, its Electric Boat business division won a modification contract worth $47 million from the Naval Sea Systems Command, Washington, D.C. Work associated with the deal will be over by Dec 2017.

Per the terms of this contract, Electric Boat will perform non-nuclear submarine repair work on Groton-based submarines under the New England Manpower Initiative (NEMMI). The division will also continue providing skilled personnel to perform non-nuclear submarine repair work at the Naval Submarine Base, New London, CT, in support of returning mission ready submarines to the fleet.

4. United Technologies’ subsidiary, Pratt and Whitney has clinched a modification contract worth $93.2 million for F119 engine sustainment. Work related to this deal is scheduled to be over by Dec 31, 2017.

Per the terms of this agreement, Pratt and Whitney will provide engine sustainment labor, data and combined test force operations and support. Notably, F119 is the most advanced, fifth-generation production engine that powers the Air Force’s F-22 Raptor. This engine offer the F-22 supercruise – the ability to operate supersonically without afterburning, facilitating exceptional combat performance without compromising on mission range.

5. Harris Corp. won a contract worth $91 million to support FMS Advanced Integrated Defensive Electronic Warfare Suite (AIDEWS) customers' production requirements. Work related to this deal will be over by Nov 18, 2019.

This contract will aid the production of the AN/ALQ-211(V)4/8/9 AIDEWS systems, software, and associated support equipment for Electronic Combat International Security Assistance Program customers. Notably, Harris Corp.’s AIDEWS is a modular electronic warfare system compatible with a wide range of fighter aircraft. AIDEWS can be tailored to meet unique customer requirements related to integrated radar warning and RF countermeasures, and advanced stand-alone radar warning.

Performance

The major defense stocks have put up a strong performance over the past five trading sessions, with all of them witnessing impressive gains. L-3 Communications Holdings, Inc. LLL was the biggest gainer, with the stock improving 3.35%, followed by Boeing.

Over the past six months too, major the stocks in this sector delivered a stellar performance. Notably, Textron gained the most with its stock rallying 19.6%, followed by General Dynamics.

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.

CompanyLast WeekLast 6 Months
LMT0.43%9.72%
BA3.03%17.44%
GD2.97%19.30%
RTN2.01%13.71%
NOC1.20%15.33%
COL2.79%2.30%
TXT2.71%19.60%
LLL3.35%12.04%

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