U.S. Defense Secretary James Mattis recently hinted at sending additional U.S. troops to war-ravaged Afghanistan while admitting that the U.S.forces are no more in an advantageous position in the region. He also stated that he has been authorized by President Trump to construct new strategies for executing enhanced counter-terrorism operations in support of the Afghan soldiers.

Although no final decision has been announced so far, most analysts expect the U.S. to send more soldiers and ammunitions to combat the current volatile situation. Undoubtedly, this will directly benefit the defense contractors of the U.S.

Moreover, Mattis and chairman of the Joint Chiefs of Staff, Gen. James Dunford briefed in favor of the president's fiscal-2018 defense budget before the House Appropriations Defense subcommittee. They supported an increased budget for defense, citing a worsening international security environment and technological competition as the primary reason.

These factors have induced greater optimism among investors. As a result, the Aerospace-Defense industry has ended in green in the last five trading sessions. While the S&P 500 Aerospace & Defense (Industry) Index inched up 0.02%, the Dow Jones U.S. Aerospace & Defense Index grew 1.2 % during the period.

Among the last week’s highlights, defense majors – The Boeing Company (BA Quick QuoteBA - Free Report) , Harris Corp. , Lockheed Martin Corp. (LMT Quick QuoteLMT - Free Report) and Raytheon Company – secured a number of orders from the Department of Defense’s (“DoD”) daily funding session. Meanwhile, United Technologies Corp. hiked its quarterly dividend, while Boeing announced a job cut.

(Read Defense Stock Roundup for June 09, 2017 here)

Recap of the Week’s Most Important Stories

1. Aerospace giant Boeing has clinched a modification to a foreign military sales (FMS) contract worth $410.9 million from the U.S. Army Contracting Command, Redstone Arsenal, AL. Work related to this deal will be carried out in Mesa, AZ.

Per the terms of the original contract, Boeing will provide 38 Apache aircraft, three Longbow crew trainers and associated spares to the U.K. government. Work is scheduled to be completed by Feb 28, 2023.

The Apache is a twin-engined army attack helicopter. Apart from its proven role in combat, this family of helicopters has also supported low-intensity and peacekeeping operations worldwide (read more: Boeing Wins $411M FMS Deal to Supply 38 Apache Helicopters).

Meanwhile, Boeing recently announced its decision to lay off a handful of its executives this year. The initiative will cost the jobs of as many as 50 executives from the company’s Defense, Space & Security (BDS) segment.

Apart from the layoff decision, Boeing has also undertaken some restructuring strategies to improve competitiveness and productivity of its defense unit. Starting Jul 1, Boeing’s Military Aircraft and Network & Space Systems segments will be broken down into four smaller units: Autonomous Systems, Space and Missile Systems, Strike, Surveillance and Mobility, and Vertical Lift.

On the other hand, no restructuring has been planned for the Development, Global Operations and Phantom Works segments (read more: Boeing to Lay Off 50 Defense Executives, Streamline Business).

2. Technology innovator, Harris Corp, secured a contract worth $255 million from the U.S. Special Operations Command to provide the Special Operations Forces Tactical Communications Next Generation Manpack (STC NGMP) Radio system. Work is scheduled to be over by June 2023.

The STC NGMP will be used to conduct a Capital Equipment Replacement Program, replacing legacy manpack radios such as the AN/PRC-117F and AN/PRC-117G.  The radio system will also offer Special Operations Forces teams with the ability to communicate utilizing a two-channel manpack radio.

3. Lockheed Martin’s business unit – Missiles and Fire Control (MFC) – won a contract worth $108.3 million from the U.S. Air Force for Advanced Radar Threat System Variant 2 (ARTS-V2).

Per the terms, Lockheed Martin, the Pentagon's largest contractor, will offer services for the development and testing of an ARTS-V2 production representative article. The agreement also includes options to manufacture up to 20 systems. Work is scheduled to be completed by Jun 30, 2027.

Lockheed Martin’s radar systems offer advanced precision targeting, navigation, threat detection and next generation intelligence, surveillance and reconnaissance (ISR) capabilities (read more: Lockheed Martin Unit Wins $108M Air Force Deal for ARTS-V2).

4. Defense giant Raytheon’s business unit – Missile Systems – won a modification contract worth $82.8 million to procure 180 AIM-9X Block II all-up-round tactical missiles of the 17th Lot. Per the modification, the company will procure Block II missiles – 52 for the Air Force, eight for the Navy, 93 for the governments of Poland, 14 for Indonesia, 10 for Romania and three for Belgium.

The deal covers purchasing 30.59% for the Air Force, 6.08% for the Navy, 49.08% for the governments of Poland, 7.39% for Indonesia, 5.28% for Romania and 1.58% for Belgium under the Foreign Military Sales (FMS) program. Work is scheduled to be completed by Mar 2020, the majority of which will be carried out in Tucson, AZ.

The AIM-9X Block II missile is an advanced version of Raytheon's AIM-9X Block I Sidewinder infrared-guided, air-to-air missile. It is armed with improved handling, loading, in-flight safety and enhanced ability to destroy a target (read more: Raytheon Wins $83M Navy Contract for AIM-9X Block II Missile).

5. Industrial goods manufacturer United Technologies has announced a 6.1% year-over-year hike in its quarterly dividend to 70 cents per share or $2.80 on an annualized basis. The increased dividend will be paid on Sep 10 to shareholders on record as of Aug 18.

A steady dividend payout is part of the long-term strategy of the company to provide attractive risk-adjusted returns to its stockholders. The company continues to maintain a strong cash flow position through a disciplined capital deployment strategy. As of Mar 31, 2017, cash and cash equivalents were $7,156 million (read more: United Technologies Hikes Quarterly Dividend by 6%).

Performance

Most of the major defense stocks have put up an impressive performance over the last five trading sessions. Boeing’s shares gained the most with a rise of 3.01%, followed by L3 Technologies, Inc. .

Over the last six months, the performance of the industry has also been stellar, except that of Textron Inc. (TXT Quick QuoteTXT - Free Report) . Boeing once again gained the most, with its shares rising 27.11%, followed by General Dynamics Corp. (GD Quick QuoteGD - Free Report) .

The following table shows the price movement of the major defense players over the past five trading days and during the last six months

What to Expect Next in This Space?

With the International Paris Air Show set to take place this next week at the Le Bourget Parc des Expositions, defense biggies like Lockheed Martin and Boeing are gearing up to present their exclusive combat jets before traders as well as the public. This time, Lockheed Martin aims to display its F-35A Joint Strike Fighter jet at the show.

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