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Defense Stock Roundup: HII, LDOS, OA Top Q2 Earnings, UTX May Buy COL

Zacks

The second-quarter 2017 earnings season is in its last leg and the picture so far appears to be quite encouraging. As of Aug 4, 84% of the S&P 500 members have released improved quarterly numbers, of which 74.3% have surpassed EPS estimates. Earnings for these companies rose 11.6% from second-quarter 2016 on 5.6% higher revenues. Coming to the broader Aerospace sector, 90% of the companies have released their results, with 88.9% coming up with an earnings beat and 66.7% surpassing revenue estimates.

Over the past five trading sessions quarterly results dominated this space. A generous flow of funds from the Pentagon also boosted the prospects of defense stocks. As a result, major indices of the Aerospace-Defense space ended in the green. While the S&P 500 Aerospace & Defense (Industry) Index inched up 1.3%, the Dow Jones U.S. Aerospace & Defense Index rose 1.5% in the last five trading sessions.

Among last week’s highlights, defense primes Huntington Ingalls Industries, Inc. HII, Spirit AeroSystems Holdings, Inc. SPR, Leidos Holdings, Inc. LDOS, Orbital ATK, Inc. OA and TransDigm Group Inc. TDG released their quarterly figures. Meanwhile, The Boeing Company BA secured a notable contract from the Department of Defense (DoD), whereas United Technologies Corp UTX revealed plans to acquire Rockwell Collins Inc. COL.

(Read Defense Stock Roundup for Aug 2, 2017 here)


Recap of Last Week’s Key Stories

1. Military shipbuilder, Huntington Ingalls’ second-quarter 2017 earnings surpassed the Zacks Consensus Estimate by 22.5%.Total revenue in the quarter also came ahead of the Zacks Consensus Estimate by 4.1%.

Segment-wise the company witnessed positive growth in each of its segments. Huntington Ingalls received new orders worth $3.4 million during the reported quarter, as a result, the company’s total backlog reached $21.1 billion as of Jun 30, 2017.

Cash from operating activities in second-quarter 2017 was $186 million, compared with $169 million in second-quarter 2016 (read more:Huntington Ingalls Q2 Earnings Beat, Sales Up Y/Y).

2. Spirit AeroSystems Holdings’ second-quarter 2017 adjusted earnings exceeded the Zacks Consensus Estimate by 30.8%. Total revenue in the second quarter also surpassed the Zacks Consensus Estimate by 6.4%.

Backlog at the end of the reported quarter was $46 billion, in line with the prior-quarter figure.Cash flow from operating activities increased to $334 million in the second quarter from $308.8 million in the year-ago period.

Spirit AeroSystems currently expects to generate earnings per share in the range of $5.00–$5.25 in 2017, up from the prior guidance range of $4.60–$4.85 (read more:Spirit AeroSystems Q2 Earnings Beat, '17 EPS View Up).

3.Leidos Holdings’ second-quarter 2017 adjusted earnings and revenues topped the Zacks Consensus Estimate by 35.1% and 0.5%, respectively.

At the end of the second quarter, the company’s backlog of signed business orders was $17.1 billion, of which $5 billion was funded. Total backlog at the end of second quarter was $16.9 billion, of which $4.9 billion was funded.

For 2017, Leidos Holdings raised its earnings expectation in the range of $3.45–$3.60 per share from $3.05–$3.35, guided earlier (read more: Leidos Holdings Beats on Q2 Earnings, Raises '17 View).

4. Orbital ATK’s second-quarter 2017 adjusted earnings surpassed the Zacks Consensus Estimate by 7.6%. Total revenue in the quarter also exceeded the Zacks Consensus Estimate by 0.2%

As of Jul 2, Orbital ATK's firm backlog was approximately $9.5 billion, up 10% year over year. Total backlog (including options, indefinite quantity contracts and undefinitized orders) was approximately $15.4 billion, up 4%.

The company raised its 2017 earnings per share guidance in the range of $5.95–$6.25 from $5.80–$6.20 (read more: Orbital ATK Q2 Earnings and Revenues Beat Estimates).

5. TransDigm Group’s third-quarter fiscal 2017 adjusted earnings of $3.20 per share exceeded the Zacks Consensus Estimate of $2.98. Net sales of $907.7 million, also surpassed the Zacks Consensus Estimate of $902 million.

TransDigm ended the quarter with cash and cash equivalents of $970.5 million, down from $1587.0 million as of Sep 30, 2016.

Concurrent with the fiscal third-quarter 2017 results, TransDigm reiterated its fiscal 2017 outlook. It reaffirmed adjusted earnings to be in the range of $12.09–$12.33 per share (read more:TransDigm Q3 Earnings Beat Estimates, View Intact).

6.Aerospace giant Boeing has clinched a contract worth $409 million, for Next Generation Thermal, Power and Controls (NGT-PAC) program. Work related to this deal is scheduled to be over by Jul 2024.

The contract has been awarded by the Air Force Research Laboratory, Wright-Patterson Air Force Base, OH. In fact, this deal is a joint effort of multiple government agencies and industry to develop revolutionary and innovative technologies. Through this contract, applied research will also be conducted for enhancing knowledge and understanding of future power, thermal and controls requirements (read more: Boeing Wins $409M Air Force Deal for NGT-PAC Program).

7. Per undisclosed sources, it was announced recently that United Technologies has revealed plans to acquire the aircraft component manufacturer – Rockwell Collins. This acquisition will enable United Technologies bulk up its aerospace group, separating it from other industrial units. This deal has not yet been confirmed, as both the companies are currently in talks.

If the deal is sealed, Rockwell Collins’ commercial and military aircraft avionics business will merge with United Technologies' wide portfolio which includes aircraft engines, structures, cockpit and cabin controls, ventilation systems and other electronic and mechanical devices used in aviation. The merger will help United Technologies to strengthen its client base as well as gain an edge over its peers (read more: United Technologies Likely to Acquire Rockwell Collins).

Performance

Over the last five trading sessions, most of the defense biggies have put up an impressive show, except Boeing and Textron Inc. TXT. Notably, shares of Rockwell Collins surged 12.7% in the last five days, followed by Lockheed Martin Corp. LMT.

However, over the last six months, the performance of the entire industry has been stellar. Boeing gained the most, with its shares rising 46.21%, followed by Rockwell Collins.

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
LMT2.81%16.89%
BA-0.04%46.21%
GD1.16%8.55%
RTN1.66%17.96%
NOC2.03%16.09%
COL12.70%38.88%
TXT-0.61%2.19%
LLL2.34%11.23%

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