The U.S. Department of Defense (DoD) dispersed 27 new contracts worth $1.45 billion on Sep 12, 2013. These contracts mainly went to privately held firms. Though not sizeable, publicly traded firms were also the beneficiary of some of these contracts. These publicly traded firms include Raytheon Co. (RTN - Analyst Report), Textron Inc. (TXT - Analyst Report), The Boeing Company (BA - Analyst Report), General Electric Company (GE - Analyst Report) and Rolls Royce Holdings plc.
Per a $19.4 million contract, Raytheon will work on Military Imaging Surveillance Technology-Long Range Technical Area 2. The company will research on advanced computational imaging techniques for beyond-the-diffraction-limit imaging. The contract is expected to be completed by Feb 20, 2015.
Textron’s Bell Helicopter unit received an $18.8 million contract to provide one UH-1Y Venom utility helicopter. The delivery to the U.S Marine Corps. is expected by Dec 2015.
Boeing received a contract to provide the Defense Logistics Agency, Aviation, with tail rotor heads. The contract has a maximum value of $8 million.
GE Aviation Systems, a division of General Electric, received a modification contract worth $20.2 million for the supply of 240 FPU-12/A 480-gallon external fuel tanks. These fuel tanks will be utilized by the Navy for their F/A-18 E/F fighter jets and EA-18G electronic warfare aircraft. The contract runs through Jan 2016.
Rolls-Royce has received a modification contract worth $6.7 million to perform 434 engine flight-hours' worth of maintenance and also 10 low-power repairs on MV-22 Osprey tiltrotor aircraft. The contract runs through Nov 2013.
Despite the threat of sequestration, the DoD has been regularly dispersing contracts to private and publicly traded firms. On Sep 9, 2013, Defense major, Northrop Grumman Corp. succeeded in clinching one of the largest contracts awarded by the U.S. DoD. Northrop won a $219.1 million firm-fixed and cost-type contract from the U.S. Air Force for follow-on production of its Joint Threat Emitter. The work on the latest contract is slated to be finished by Mar 2016.
Raytheon is well positioned based on its realligned segments, investments in technology and innovations, international exposure, steady flow of contracts, cash deployment strategy, and cost reduction initiatives. Meanwhile Textron’s geographically-diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk.
Also, the company is progressing well on its new products. Boeing is also one of the major players in the defense business, which accounts for approximately half of its top line. Boeing’s defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog.
Nevertheless, all these major defense primes face the risk of U.S. defense budget cuts, the uncertain fate of high-cost programs, risks related to key project executions and order cancellations.
While Raytheon presently holds a short-term Zacks Rank #2 (Buy), Boeing and Textron retain a short-term Zacks Rank #3 (Hold).