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3 Defense Stocks to Gain from US-Saudi Arabia Arms Deal
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President Trump has an attractive return gift for the U.S. defense contractors from his inaugural foreign trip. On May 20, Trump signed an arms deal worth $110 billion with Saudi Arabia. The agreement, with a potential value of $350 billion over 10 years, will take effect immediately.
Consequently, defense stocks rallied on Monday, following the opening bell. Major indices of this industry — S&P 500 Aerospace & Defense (Industry) and Dow Jones U.S. Aerospace & Defense Index — gained around 2.3% in a single trading day.
We note that this deal outweighed the $38 billion U.S.-Israel defense pact that was inked in Sep 2016, for a total of 10 years.
Details of the Deal
Per the terms of the agreement, the U.S. will provide Saudi Arabia with fighter jets, ships and missiles, as well as energy technology, health-care expertise, job training and a $40-billion joint infrastructure investment fund (as per The Washington Post). However, a significant portion of the deal will be invested in goods made in the Kingdom of Saudi Arabia (KSA) and not in the U.S.
This, in turn, will boost the manufacturing sector of the oil-exporting nation, thereby creating more jobs. It is believed that this clause of the agreement is in sync with Saudi Arabia’s Vision 2030, through which the government plans to transform the economy. It aims to achieve this by shifting its focus away from petroleum and raising non-oil exports to 50% from the current 16% by 2030. In fact, toward this end, state-sponsored energy giant, Saudi Aramco inked a $50 billion deal with U.S. firms to develop the economy beyond the realm of oil.
According to the U.S. Department of States, the arms package will support the long-term security of Saudi Arabia and the Gulf region in the face of malign Iranian influence and Iran-related threats. The deal will include sales of products related to border security and counterterrorism, maritime and coastal security, air force modernization, air and missile defense as well as cybersecurity and communications upgrades.
Defense Stocks that Will Benefit
According to major media sources, although no official itemized list of the defense equipment involved in this deal has been released, defense primes Lockheed Martin Corp. (LMT - Free Report) , The Boeing Company (BA - Free Report) and Raytheon Company will most likely be the biggest beneficiaries of this multibillion-dollar contract. Let’s discuss in brief how the deal will benefit these defense majors.
Lockheed seems to have garnered the majority of this huge arms deal, with Saudi Arabia set to procure its integrated air and missile defense, combat ship, tactical aircraft, and rotary wing technologies and programs, for $28 billion.
In particular, Lockheed Martin and Taqnia — a Saudi Arabian technology development and investment company — will form a joint venture (JV) to support final assembly and completion of an estimated 150 S-70 Black Hawk choppers for the Saudi government. The program, worth $6 billion, will create jobs for more than 450 U.S. citizens and another 450 in the KSA.
Moreover, Lockheed and Saudi Arabian Military Industries will work together to build defense capabilities in the KSA to provide localization efforts associated with Multi-mission Surface Combatants and Aerostats. Once fully realized, these programs will support more than 18,000 highly skilled jobs in the U.S. and thousands of jobs in Saudi Arabia.
Being Pentagon’s primary contractor, Lockheed’s growth trajectory will surely be boosted by this huge foreign military contract (FMS) in the years to come. Currently, the company carries a Zacks Rank #3 (Hold).
Although no contract value has been released, Boeing also clinched a significant portion of the arms package. To be specific, Boeing will sell its Chinook helicopters and associated support services as well as guided weapon systems to the Saudi government. The government might also buy Boeing’s P-8 Poseidon military aircraft, designed for long-range anti-submarine warfare.
Boeing will offer sustainment services for a wide range of military platforms, which is aimed at supporting the KSA’s indigenous aerospace industry and ecosystem.
With varied aircraft at the center of the deal, Boeing — the largest aerospace firm in the U.S. — will surely be able to expand its revenue growth rate. Currently, the company carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Raytheon has not offered any details of its defense equipment to be supplied to the KSA. It has, however, signed a memorandum of understanding (MOU) with the Saudi Arabia Military Industries Company, to cooperate on defense-related projects and technology development.
Per management, this MOU will enable consistent global growth for Raytheon in key market areas such as air defense systems, smart munitions, C4I Systems and cybersecurity of defense systems and platforms. As part of this deal, the company will also establish Raytheon Arabia — a Saudi legal entity wholly owned by the company — to administer programs for creating indigenous defense, aerospace and security capabilities in the KSA.
With the U.S. Department of State indicating a possible adoption of Raytheon’s Patriot missile system by Saudi Arabia, such deals are expected to bring a rally in the company’s share price.
The company currently holds a Zacks Rank #2 (Buy).
Our View
It is imperative to mention that although a huge part of the deal is aimed at boosting jobs for the Arabs, it will also generate jobs for almost 10,000 Americans. This will be an added bonus from the multibillion-dollar deal.
Additionally, the contract will bolster the KSA’s ability to provide for its own security and counter terrorist attacks across its boundary, thereby reducing the burden on U.S. military forces.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
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3 Defense Stocks to Gain from US-Saudi Arabia Arms Deal
President Trump has an attractive return gift for the U.S. defense contractors from his inaugural foreign trip. On May 20, Trump signed an arms deal worth $110 billion with Saudi Arabia. The agreement, with a potential value of $350 billion over 10 years, will take effect immediately.
Consequently, defense stocks rallied on Monday, following the opening bell. Major indices of this industry — S&P 500 Aerospace & Defense (Industry) and Dow Jones U.S. Aerospace & Defense Index — gained around 2.3% in a single trading day.
We note that this deal outweighed the $38 billion U.S.-Israel defense pact that was inked in Sep 2016, for a total of 10 years.
Details of the Deal
Per the terms of the agreement, the U.S. will provide Saudi Arabia with fighter jets, ships and missiles, as well as energy technology, health-care expertise, job training and a $40-billion joint infrastructure investment fund (as per The Washington Post). However, a significant portion of the deal will be invested in goods made in the Kingdom of Saudi Arabia (KSA) and not in the U.S.
This, in turn, will boost the manufacturing sector of the oil-exporting nation, thereby creating more jobs. It is believed that this clause of the agreement is in sync with Saudi Arabia’s Vision 2030, through which the government plans to transform the economy. It aims to achieve this by shifting its focus away from petroleum and raising non-oil exports to 50% from the current 16% by 2030. In fact, toward this end, state-sponsored energy giant, Saudi Aramco inked a $50 billion deal with U.S. firms to develop the economy beyond the realm of oil.
According to the U.S. Department of States, the arms package will support the long-term security of Saudi Arabia and the Gulf region in the face of malign Iranian influence and Iran-related threats. The deal will include sales of products related to border security and counterterrorism, maritime and coastal security, air force modernization, air and missile defense as well as cybersecurity and communications upgrades.
Defense Stocks that Will Benefit
According to major media sources, although no official itemized list of the defense equipment involved in this deal has been released, defense primes Lockheed Martin Corp. (LMT - Free Report) , The Boeing Company (BA - Free Report) and Raytheon Company will most likely be the biggest beneficiaries of this multibillion-dollar contract. Let’s discuss in brief how the deal will benefit these defense majors.
Lockheed seems to have garnered the majority of this huge arms deal, with Saudi Arabia set to procure its integrated air and missile defense, combat ship, tactical aircraft, and rotary wing technologies and programs, for $28 billion.
In particular, Lockheed Martin and Taqnia — a Saudi Arabian technology development and investment company — will form a joint venture (JV) to support final assembly and completion of an estimated 150 S-70 Black Hawk choppers for the Saudi government. The program, worth $6 billion, will create jobs for more than 450 U.S. citizens and another 450 in the KSA.
Moreover, Lockheed and Saudi Arabian Military Industries will work together to build defense capabilities in the KSA to provide localization efforts associated with Multi-mission Surface Combatants and Aerostats. Once fully realized, these programs will support more than 18,000 highly skilled jobs in the U.S. and thousands of jobs in Saudi Arabia.
Being Pentagon’s primary contractor, Lockheed’s growth trajectory will surely be boosted by this huge foreign military contract (FMS) in the years to come. Currently, the company carries a Zacks Rank #3 (Hold).
Although no contract value has been released, Boeing also clinched a significant portion of the arms package. To be specific, Boeing will sell its Chinook helicopters and associated support services as well as guided weapon systems to the Saudi government. The government might also buy Boeing’s P-8 Poseidon military aircraft, designed for long-range anti-submarine warfare.
Boeing will offer sustainment services for a wide range of military platforms, which is aimed at supporting the KSA’s indigenous aerospace industry and ecosystem.
With varied aircraft at the center of the deal, Boeing — the largest aerospace firm in the U.S. — will surely be able to expand its revenue growth rate. Currently, the company carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Raytheon has not offered any details of its defense equipment to be supplied to the KSA. It has, however, signed a memorandum of understanding (MOU) with the Saudi Arabia Military Industries Company, to cooperate on defense-related projects and technology development.
Per management, this MOU will enable consistent global growth for Raytheon in key market areas such as air defense systems, smart munitions, C4I Systems and cybersecurity of defense systems and platforms. As part of this deal, the company will also establish Raytheon Arabia — a Saudi legal entity wholly owned by the company — to administer programs for creating indigenous defense, aerospace and security capabilities in the KSA.
With the U.S. Department of State indicating a possible adoption of Raytheon’s Patriot missile system by Saudi Arabia, such deals are expected to bring a rally in the company’s share price.
The company currently holds a Zacks Rank #2 (Buy).
Our View
It is imperative to mention that although a huge part of the deal is aimed at boosting jobs for the Arabs, it will also generate jobs for almost 10,000 Americans. This will be an added bonus from the multibillion-dollar deal.
Additionally, the contract will bolster the KSA’s ability to provide for its own security and counter terrorist attacks across its boundary, thereby reducing the burden on U.S. military forces.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>