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Defense Stock Roundup: Mattis Readies US Army for Prompt Action, LMT, RTN Win Big

Zacks

The U.S. aerospace and defense space hogged into limelight post Defense Secretary James Mattis’ comments regarding military deployment in Afghanistan. At a congressional hearing on Oct 3, Mattis announced that he is set to review the rules of the United States’ military engagement in Afghanistan, hinting at a possible increase in the number of deployed troops.

Meanwhile on Oct 9, while criticizing North Korea’s repeated missile tests Mattis asked the U.S. Army to prepare for action in response to Kim-Jong’s rapid hostility. He also termed North Korea’s move as a serious threat to global peace. This in turn boosted defense stocks on anticipation of escalated military actions.


Meanwhile, keeping up with the trend, defense stocks continued to receive generous flow of funds from the Pentagon.

Coming to the performance of the major indices of the Aerospace space, in the last five trading sessions, the stocks ended up in the green zone. Notably, the S&P 500 Aerospace & Defense (Industry) Index surged 2.2%, while the Dow Jones U.S. Aerospace & Defense Index rose 1.3% during this period.

Among last week’s highlights, defense majors Lockheed Martin Corp. LMT, Raytheon Company RTN and Northrop Grumman Corp. NOC secured notable contracts from the Department of Defense (DoD). Meanwhile, Honeywell International, Inc. HON and Lockheed Martin announced dividend hike news, while The Boeing Company BA revealed its Q3 orders.

A Look Back at Last Week’s Key Stories

1. Pentagon’s largest defense contractor, Lockheed Martin, clinched a contract worth $584.2 million, for the construction of a littoral combat ship (LCS). The contract has been awarded by the Naval Sea Systems Command, Washington, D.C. Majority of the work will be executed in Marinette, WS.

Per the contract, the company will provide related LCS class services and material, along with integrated data environment support. The agreement also includes options for the construction of additional LCS, class services and post-delivery availability support. The Navy expects to order additional LCS class ships in the future. Work related to this deal is expected to be over by October 2023 (read more: Lockheed Martin Wins $584M Deal for Littoral Combat Ship).

Over the week, the company’s Space Systems business unit secured a modification contract worth $419 million, for new procurement of Trident II (D5) missile production, D5 life extension production and D5 deployed systems support. The contract has been awarded by the Strategic Systems Programs, Washington, D.C.

The deal includes base items and all option items, which if exercised, will enhance the total value of the modification to $1.1 billion. Work related to this deal is expected to be over by Sep 30, 2022; while majority of the task will be executed in Sunnyvale, CA and Cape Canaveral, FL. (read more: Lockheed Martin Wins $419M Deal for Trident II Missile).

Moreover, Lockheed Martin raised its quarterly dividend. The company will pay $2.00 per share in fourth-quarter 2017, reflecting a 10% rise from the previous dividend of $1.82. Interestingly, this hike marks the 15th year in a row when this defense prime has increased its quarterly dividend rate by 10% or more.

Also, the company authorized additional share repurchase of $2 billion, thus bringing its total authorization value to $4 billion for future share repurchases (read more: Lockheed Martin Ups Dividend By 10% & Share Buyback by $2B).

2. Missile maker Raytheon’s business segment, Missile Systems, secured a contract worth $300.1 million, for supplying Tube-launched Optically-tracked Wireless-guided (TOW) missiles. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Work related to the deal will be executed in Tucson, AZ and Farmington, NM.

These missiles will be provided to the U.S. Army, Marine Corps and foreign military sales customers by Jul 31, 2020.

Notably, with its extended range of performance, the TOW missile is a long-range precision, heavy anti-tank and assault weapon system of choice for the U.S. Army Stryker, Bradley Fighting Vehicle, ITAS High-Mobility Multipurpose Wheeled Vehicle and Light Armored Vehicle-Anti-tank platforms (read more: Raytheon Wins $300M Deal for Supplying TOW Missiles).

3. Defense prime Northrop Grumman’s Aerospace Systems unit secured a contract worth $130.5 million for the Japan Global Hawk program. The deal has been awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH.

Per the agreement, Northrop Grumman will provide long lead material to commence the program for three global hawk block 30 (I) air vehicles, two ground control elements, improved integrated sensor suite, spares and a site survey.

Scheduled to be completed by July 27, 2018, the work will be performed in San Diego, CA (read more: Northrop Grumman's Unit Wins $130M Deal for Global Hawk).

4. Aircraft giant Boeing reported third-quarter 2017 deliveries, wherein defense shipments dropped 12% year over year. In particular, its defense deliveries totaled 44 in the third quarter compared with 50 in the year-ago quarter.

Total deliveries consisted of 18 AH-64 Apache helicopters (both new and remanufactured) and 11 Chinook helicopters (new and renewed). In addition, the company delivered six F/A-18s, five P-8 models and four F-15s (read more: Boeing's Q3 Commercial Deliveries Up Y/Y, Defense Order Lags).

5. Diversified conglomerate Honeywell International announced a 12% year-over-year hike in its annual dividend to $2.98 per share. The increased dividend will be payable from fourth-quarter 2017 and is scheduled to be paid on Dec 8 to shareholders on record as of Nov 17 (read more: Honeywell Increases Annual Dividend Payout by 12%).

Performance

Over the last five trading sessions, most of the defense majors, except L3 Technologies, Inc. LLL, put up an impressive show. Notably, shares of General Dynamics Corp. GD gained the maximum, 3.89%, in the last five days, followed by Textron Inc.

On a brighter note, over the last six months, the entire industry has put up a stellar performance. This time Boeing gained the most, with its shares rising 44.47%, followed by Rockwell Collins, Inc..

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
LMT2.22%17.42%
BA1.67%44.47%
GD3.89%13.56%
RTN0.74%22.91%
NOC2.18%23.05%
COL1.87%34.68%
TXT2.69%16.07%
LLL-2.02%13.20%

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