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Defense Stock Roundup: LDOS, HII, OA Earnings Beat, LMT Wins Big

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With 436 S&P 500 members having reported their results as of Nov 8, the third-quarter 2017 reporting cycle is at its tail end. Notably, a positive revenue momentum and favorable estimate revision trends have been reflected in the quarterly releases.

Evidently, 73.4% of these index members surpassed EPS estimates with earnings rising 6.8% from third-quarter 2016 on 6.2% higher revenues. Coming to the broader Aerospace sector, 90% of the companies have released their results, with 77.8% delivering an earnings beat and 33.3% surpassing revenue estimates.


Over the past five trading sessions, this space saw a number of quarterly releases. A moderate flow of funds from the Pentagon also boosted the prospects of defense stocks. As a result, major indices of the Aerospace-Defense industry ended in the green. Evidently, the S&P 500 Aerospace & Defense (Industry) index inched up 0.5% over the said time frame.

Among last week’s highlights, while defense primes Leidos Holdings, Inc. LDOS, Huntington Ingalls Industries, Inc. HII, Orbital ATK, Inc. OA and Triumph Group, Inc. TGI released their quarterly numbers, Lockheed Martin Corp. LMT won notable contracts from the Pentagon.

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

Recap of Last Week’s Key Stories

1. Leidos Holdings reported third-quarter 2017 adjusted earnings of 95 cents per share, beating the Zacks Consensus Estimate of 80 cents by 18.8%. The company generated total revenues of $2,503 million in the quarter, which missed the Zacks Consensus Estimate of $2,505 million by 0.1%.

The company’s backlog of signed business orders was $17.7 billion, at the end of the quarter, of which $5.6 billion was funded. Total backlog at the end of the previous quarter was $17.1 billion.

For 2017, the company raised its earnings expectation in the range of $3.60-$3.75 per share from $3.45- $3.60, projected earlier (read more: Leidos Holdings Beats on Q3 Earnings, Raises '17 View ).

2. Huntington Ingalls’ third-quarter 2017 earnings of $3.27 per share surpassed the Zacks Consensus Estimate of $2.78 by 17.6%. Total revenues in the third quarter were $1.86 billion, ahead of the Zacks Consensus Estimate of $1.78 billion by 4.5%.

The company received new orders worth $3 billion during the quarter, as a result of which, its total backlog reached $23 billion as of Sep 30, 2017.

Huntington Ingalls’ cash from operating activities in third-quarter 2017 was $380 million, compared with $477 million in third-quarter 2016 (read more: Huntington Ingalls Tops Q3 Earnings, Sales Up Y/Y).

3.Orbital ATK posted third-quarter 2017 adjusted earnings of $1.75 per share, topping the Zacks Consensus Estimate of $1.56 by 12.2%. Its total revenues in the quarter under review came in at $1,216 million, beating the Zacks Consensus Estimate of $1,166 million by 4.3%.

As of Sep 30, Orbital ATK's firm contract backlog was approximately $9.6 billion, up 5% year over year. Total backlog (including options, indefinite quantity contracts and undefinitized orders) was approximately $15.7 billion, up 3%.

Due to proposed acquisition of Orbital ATK by Northrop Grumman Corporation NOC, the company’s management decided not to provide annual earnings guidance for it (read more: Orbital ATK Q3 Earnings and Revenues Beat Estimates).

4. Triumph Group’s adjusted earnings from continuing operations in second-quarter fiscal 2018 (ended Sep 30) were 52 cents per share, reflecting a decline of 48% from $1.00 per share a year ago.

In the quarter, net sales were $745.2 million, lagging the Zacks Consensus Estimate of $795 million by 6.3%. The top line also declined 14.8% year over year.

The company continues to expect organic sales growth in fiscal 2019. Management additionally reiterated guidance for adjusted earnings per diluted share of $2.25-$2.75 (read more: Triumph Group Q2 Earnings Drop Y/Y, Misses On Revenues).

5. Lockheed Martin’s Aeronautics business division secured a modification contract worth $260 million, under which it will upgrade four P-3B aircraft, to support the government of Greece. Work related to this deal is expected to be over by December 2023.

The contract was awarded by the Naval Air Warfare Center Aircraft Division, Lakehurst, NJ. Per the terms of the agreement, Lockheed Martin will offer structural mid-life upgrades, tailored-phased depot maintenance, a country-specific designed mission integration and management system as well as new avionics for the aircraft.

Notably, the mid-life upgrade will extend the service life of each aircraft by 15,000 flight hours. Majority of the work for this contract will be executed in Marietta, GA and Schimatari, Greece.

Meanwhile, the company’s Space Systems business unit won a modification contract worth $386 million from the U.S. Air Force, for supporting reentry system/reentry vehicles subsystem. Work related to this deal will be carried out in King of Prussia, PA and is scheduled to be over by Jun 4, 2022.

Performance

Over the last five trading sessions, most of the defense biggies put up a strong show, except General Dynamics, Rockwell Collins and L3 Technologies. Textron gained the most in the last five days, with its share price rising 2.60%.

On a brighter note, over the last six months, the entire industry has put up a stellar performance. The Boeing Company BA gained the most, with its shares rising 40.55%, 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
LMT1.00%13.59%
BA2.43%40.55%
GD-2.99%1.16%
RTN2.58%15.54%
NOC0.50%19.90%
COL-1.35%27.05%
TXT2.60%15.55%
LLL-2.30%10.13%

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