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Defense Stock Roundup: Big Wins for LMT, BA & RTN, Rockwell Closes B/E Aerospace Buyout


Ongoing tensions between the U.S. and North Korea as well as a generous flow of funds from the Pentagon have been dominating the headlines in the defense space. Although these are meant to boost the outlook of defense stocks, a negative earnings growth rate expected from the Aerospace sector this season might have marred prospects to certain extent.

As a result, major indices of the Aerospace-Defense industry slipped marginally in the trailing five sessions. While the S&P 500 Aerospace & Defense (industry) Index dropped 0.04%, the Dow Jones U.S. Aerospace & Defense Index fell 0.13%.

Among last week’s highlights, defense primes Lockheed Martin Corp. LMT, The Boeing Company BA, Raytheon Company RTN and L3 Technologies, Inc. LLL secured a handful of contracts from the Department of Defense (DoD). Meanwhile, Rockwell Collins, Inc. COL completed the acquisition of B/E Aerospace Inc.

Recap of Last Week’s Key Stories

1. Pentagon’s prime contractor Lockheed Martin’s Aeronautics business division clinched a modification contract worth $372.9 million from the U.S. Navy. The original advance acquisition contract involved low-rate initial production of Lot 10 F-35 Lightning II. The work is scheduled to be completed by Mar 2020.

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Lockheed Martin will procure F-35A and F-35B variant aircraft that covers deficiency corrections for non-DoD participants.

Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine, 5th Generation fighter aircraft, which comes with an advanced stealth feature. F-35 is the world's largest defense program built by some of the leading companies in the aerospace-defense space, with Lockheed Martin being the primary contractor (read more: Lockheed Martin Unit Wins $373M F-35 Lightning II Deal).

2. Aircraft major Boeing secured a modification contract worth $144.9 million to provide production concurrency upgrades for the training system of the P-8A Multi-Mission Maritime aircraft, also known as Poseidon. Work related to this deal is expected to be over by Feb 2018.

This contract was awarded by the Naval Air Warfare Center Training Systems Division Orlando, FL. Through this deal, Boeing aims to support the U.S. Navy and the government of Australia.

Per the terms of the agreement, the upgrades will help the training devices become fully functional, ready to train and meet future capabilities. Majority of the work under the deal will be carried out in Jacksonville, FL, and St. Louis, MI (read more: Boeing Wins $145M Deal to Upgrade Poseidon Training System).

3. Defense prime Raytheon’s business unit, Missile Systems, grabbed a contract worth $113.2 million from the U.S. Navy to provide engineering and technical services for Standard Missile (“SM”). These missiles will be used by the Navy, other government agencies and foreign military sales from fiscal 2017 through 2021.

The deal includes options which would take the cumulative value of this contract to $466.5 million, if exercised. It was awarded by the Naval Sea Systems Command, Washington, D.C. Work is scheduled to be completed by Apr 2022.

Per the contract, Raytheon will provide services including research and development efforts, design, systems and production engineering, technical services, evaluation services, component improvement services and production proofing services for missile producibility, missile production and shipboard integration for SM 2, 3 and 6 (read more: Raytheon Wins $113M Deal for Standard Missile Services).

4. Defense giant L3 Technologies’ business unit, Vertex Aerospace, secured a contract worth $202.2 million from the U.S. Navy to provide depot level maintenance, logistics, and sustaining engineering services for the C-12 utility lift aircraft for the Navy and Marine Corps. Work is scheduled to be completed by Jul 2022.

The deal has been awarded by the Naval Air Systems Command, Patuxent River, MD. Per the contract, L3 Technologies will provide services including maintenance of site support, aircraft depot and engine depot. Additionally, it will cover modifications of aircraft and aircraft systems, potential site stand-ups and closures (read more: L3 Technologies Wins $202M Navy Deal for Support Services).

5. Rockwell Collins recently closed the transaction to acquire B/E Aerospace for $8.6 billion, including assumed debt. In Oct 2016, both the companies had entered into a definitive agreement for the acquisition.

With the buyout, Rockwell Collins now has almost 30,000 employees and expects its annual revenue to be more than $8 billion based on calendar year 2016 results. B/E Aerospace has been rebranded as Rockwell Collins with immediate effect.

The transaction will expand Rockwell Collins’ product portfolio, customer mix and geographic presence. It is expected to generate run-rate pre-tax cost synergy of roughly $125 million after tax. Nevertheless, by the end of fiscal 2019, the company anticipates to attain 90% of the cost synergies (read more: Rockwell Collins Acquires B/E Aerospace for $8.6B).

Last Week’s Performance

Defense biggies mostly posted dismal numbers over the past five trading sessions. While majority of the companies like Boeing, Lockheed Martin and Rockwell Collins witnessed a drop in share price, Raytheon and Northrop Grumman Corp. NOC posted a positive performance.

However, over the past six months, all of the industry majors delivered a stellar performance, except Northrop. Notably, Boeing gained the maximum at 21.46%, followed by General Dynamics Corp. GD.

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

CompanyLast WeekLast 6 Months

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