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Defense Stock Roundup: LMT, BA Win Big Contracts, TDY to Buy FLIR for $8B

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A handful of prospective consolidation agreements along with a generous flow of contracts from the Pentagon could have led to a rally in major defense stocks over the past week. However, uncertainty revolving around the two Georgia senate races and concerns over the spread of the new coronavirus strain caused the U.S. stock market to deliver a weak performance.

The effect of this must have marred growth of defense stocks and in turn caused major indices of the Aerospace-Defense space to end dismally over the trailing five trading sessions. The S&P 500 Aerospace & Defense (Industry) index lost 1.6%, while the Dow Jones U.S. Aerospace & Defense index slipped 1.4% in the aforementioned time period.

Among the past week’s highlights, defense majors namely Lockheed Martin (LMT - Free Report) and The Boeing Company (BA - Free Report) secured a number of notable deals from the Department of Defense’s daily funding session. Moreover, Teledyne Technologies (TDY - Free Report) signed an acquisition deal worth $8 billion apart from releasing its preliminary Q4 results. TransDigm Group (TDG - Free Report) completed its purchase deal worth $965 million.

Recap of Past Week’s Important Stories

1.    Lockheed Martin’s Space Systems business division won a $4.93-billion modification contract for manufacturing and delivery of three Next-Generation Geosynchronous (NGG) Earth-orbiting space vehicles (SVs). The contract was awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

The company will also provide engineering support services for launch vehicle integration and launch and early on-orbit checkout for all three NGG SVs. Work related to the deal will be performed in Sunnyvale, CA, and is expected to get completed by May 31, 2028 (read more: Lockheed Wins $4.9B Deal to Develop Space Vehicles).

Meanwhile, the company’s Aeronautics business division clinched a $1.29-billion contract in relation to the F-35 Lightning II Joint Strike Fighter Air Systems. This deal will cater to the U.S. Air Force, Marine Corps, Navy, non-Department of Defense (DoD) participants along with foreign military sales (FMS) customers.

Per the terms, Lockheed Martin will provide a consortium of services to support the in-service F-35 Lightning II Joint Strike Fighter air systems. Work related to the deal will be performed in Fort Worth, TX; Orlando, FL; alongside other locations and is expected to get completed by December 2021 (read more: Lockheed Martin's Unit Wins $1.29B Deal for F-35 Jet).

Lockheed’s Aeronautics unit won another contract worth $903.6 million for procurement of long lead materials, parts, components and support that are needed to maintain on-time production and delivery of 133 F-35 jets of the 16th Lot. Work related to this deal is expected to be completed by May 2026.

Majority of work for this contract will be conducted in Fort Worth, TX (read more: Lockheed Martin Wins $904M Deal for F-35 Jet Program).

2.    Boeing has secured a modification contract worth $189.3 million to conduct low-rate initial production (LRIP) of F-15 Eagle Passive Active Warning and Survivability System (EPAWSS). Work related to the deal is scheduled to be completed by Dec 31, 2026.

Per the terms, Boeing will acquire Group A and B kits, support equipment, mod line standup, technical orders and interim contractor support efforts for the LRIP of the EPAWSS systems, which will be installed on existing F-15 aircraft (read more: Boeing Wins $189M Deal to Support F-15 Jet Program).

3.    Teledyne Technologies has signed acquisition deal to buy FLIR Systems (FLIR - Free Report) , one of the pioneers in thermal imaging, in a cash-and-stock deal worth $8 billion. The transaction is expected to close in the middle of 2021, subject to the receipt of required regulatory approvals.

This in turn will enhance the acquirer’s footprint in the growing image sensor market (read more: Teledyne Set to Buy FLIR Systems for $8B, Shares Fall 8%).

The company has also released its preliminary financial results for fourth-quarter and full-year 2020. Per the announcement, the company projects sales of $800 million in the fourth quarter of 2020, which indicates an annual decline of 4.1%.

Teledyne expects GAAP EPS in the range of $3.16-$3.19, which reflects stark improvement from the company’s prior guidance of $2.56-$2.86. The updated guidance range also indicates an annual improvement of 3-4% when compared with $3.06 in fourth-quarter 2019 (read more: Teledyne Stock Up on Impressive Q4 Preliminary Results).

4.    TransDigm completed the purchase of Cobham Aero Connectivity for approximately $965 million in cash, including tax benefits. A portion of the acquisition, representing approximately 2% of the total purchase price, is pending subject to Finnish regulatory approval, which is expected to close in the coming weeks.

The acquisition is also expected to create an equity value in line with TransDigm's long-term private equity-like return objectives (read more: TransDigm Acquires Cobham Aero Connectivity for $965M).

Performance

Over the past five trading sessions, the defense biggies put up a dismal show, except General Dynamics (GD - Free Report) . L3Harris Technologies lost the most, with its shares having declined 3.2% followed by Boeing.

In the last six months, the industry's performance was mixed. While shares of Lockheed, General Dynamics, L3Harris went down, Boeing and Textron gained.

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

CompanyPast WeekLast 6 Months
LMT-1.57%-4.02%
BA-2.59%12.62%
GD1.48%-3.26%
RTX-1.29%-0.88%
NOC-1.05%0.11%
TXT-1.88%2.57%
LHX-3.24%-2.05%

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