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Defense Stock Roundup: AAR Corp Tops Earnings; Lockheed Ups Dividend by 10.3%

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Conflicting socio-economic and political events have hampered the global economy of late, dealing a fresh blow to the stock market last week. For instance, while oil prices rallied on hopes of a reduction in output ahead of an informal OPEC meeting in Algeria, bank shares took a beating owing to capital issues at Deutsche Bank. Consequently, majority of the benchmark indices declined in the last five trading sessions.

On the contrary, the picture was quite rosy in the aerospace and defense sector. In fact, both the S&P 500 Aerospace & Defense (Industry) index and Dow Jones U.S. Aerospace & Defense Index gained a respective 2.5% and 1.8% during the last five trading sessions.

Among last week’s highlights were AAR Corp.’s (AIR - Free Report) better-than-expected first-quarter fiscal 2017 results and Lockheed Martin Corp.’s (LMT - Free Report) announcement of a dividend hike. Meanwhile, a generous flow of contracts from the Pentagon’s daily funding session made the week eventful for defense primes like Lockheed Martin, Raytheon Company (RTN - Free Report) , General Dynamics Corp. (GD - Free Report) and Northrop Grumman Corp. (NOC - Free Report) .

(Read Defense Stock Roundup for Sep 21, 2016 here.)

Recap of the Week’s Most Important Stories

1. AAR Corp., a leading supplier of aftermarket products and services to the global aerospace/aviation industry, reported first-quarter fiscal 2017 earnings of 29 cents per share, outpacing the Zacks Consensus Estimate by 3.6%. Quarterly earnings also jumped 26.1% year over year.

Moreover, the company’s revenues of $404.8 million surpassed the Zacks Consensus Estimate by 1.2% and improved 4.7% from the year-ago figure. Further, during the quarter, AAR Corp. paid dividend worth $2.6 million and repurchased shares worth $14.8 million. (Read more: AAR Corp Beats Q1 Earnings and Revenue Estimates)

2. Pentagon’s largest defense contractor, Lockheed Martin opened its account this week by grabbing a modification contract worth $395 million for the development of the GPS III Space Vehicles (SV) 09 and 10. Work, expected to be completed by Aug 8, 2022, will be executed at Littleton, CO. The contract was awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

Notably, GPS III is the next-generation satellite version of original GPS and it promises to deliver signals three times more accurate than the current GPS spacecraft. The satellite’s launch is expected sometime in the first half of 2017, indicating a delay of two years from the original schedule. (Read more:Lockheed Martin Wins $395M Deal for GPS III SV 09 and 10)

This defense giant also came in news, when its Sikorsky Aircraft business unit nabbed a $232.1 million modification contract from the U.S. Navy for the procurement of two CH-53K system demonstration test article aircraft. Work on the contract is scheduled to be complete by Feb 2020.

CH-53K has the capacity to carry more than three times the external load carrying capacity of its predecessor, CH-53E, which makes it one of the world’s premier heavy lift helicopters. In addition to providing protection against ballistics, this copter incorporates a lightweight armor for shielding both passenger and crew. (Read more: Lockheed's Sikorsky Wins $232M Deal for CH-53K Choppers)

Meanwhile, Lockheed Martin declared a hike in its quarterly dividend. In the fourth quarter of 2016, the company will pay a dividend of $1.82 per share, indicating a 10.3% improvement from the previous payout of $1.65. This marks the 14th year in a row that the defense prime has raised the quarterly dividend rate by above 10%.

Moreover, management authorized an additional share repurchase of $2 billion, bringing the company’s total authorization to $4.3 billion for future share repurchases under its current program. These announcements indicate the company’s strong capital structure. (Read more: Lockheed Martin: Dividend Up 10.3%, Share Buyback by $2B)

3. Aerospace and defense behemoth General Dynamics’ business unit, General Dynamics Information Technology, secured a five-year contract, worth $430 million, from the U.S. Census Bureau for providing support to the 2020 Census Questionnaire Assistance (CQA) program.

Under the contract, the CQA program can utilize the General Dynamics Information Technology’s Customer Experience Platform solution (CXP) to aid its contact-center systems and operations. Notably, CXP is the first FedRAMP-compliant cloud-based contact center solution, which has the reputation of having successfully managed more than 75 million census forms and 11.5 million citizen contact operations for the 2010 census (Read more:. General Dynamics' Unit Wins $430M U.S. Census Deal)

Another General Dynamics subsidiary, Electric Boat Corp. secured a modification contract worth $105.5 million, for Phase 2 of the Sea Dragon Submarines Development program. Electric Boat’s SSN584 Seadragon is a nuclear-powered skate-class attack submarine, which was launched in 1954 and was earlier used extensively by the U.S. Navy.

The contract covers test planning efforts to support ground and sea-based testing of the submarine. Given that General Dynamics is one of the two contractors in the world equipped to build nuclear-powered submarines, this contract is sure to contribute to the company’s growth trajectory. (Read more: General Dynamics' Electric Boat Wins $105M U.S. Navy Deal)

4. Another defense major, Raytheon recently won a contract, worth $254.6 million, from the U.S. Navy for the Joint Precision Approach and Landing System (“JPALS”). The JPALS is an all-weather, all-mission landing system based on real-time differential correction of the Global Positioning System (GPS) signal. Per the contract, Raytheon will design, develop, manufacture, integrate, demonstrate and test the JPALS.

The company will continue the development of eight existing engineering development models (EDMs), and deliver two additional EDMs to support the initial operational requirements for F-35B/C, and MQ-25 test and primary operational supplies aboard nuclear aircraft carriers and amphibious assault ships.Work is scheduled to be complete by Sep 2022. (Read more: Raytheon Wins $255 Million Navy Contract for JPALS)

5. Northrop Grumman was awarded a contract worth $149.7 million by the U.S. Navy to provide the required hardware, production test stations and technical support to incorporate the Large Aircraft Infrared Countermeasures (“LAIRCM”) on the combat aircraft. These airplanes will be used by the U.S. Navy, Army, Marine Corps and Special Operations Command, and will also be sold to the government of Australia.

Per the contract, the hardware to be procured includes weapon replaceable assemblies and support equipment. Notably, LAIRCM is an active countermeasure that can automatically detect a missile launch and currently Northrop is the only manufacturer of LAIRCM (Read more: Northrop Unit Wins $150M Navy Contract for LAIRCM).


The major defense stocks put up strong show last week, with all the companies gaining more than 0.6%. Rockwell Collins Inc. (COL - Free Report) was the biggest gainer with a 3.41% rise in its price, while Raytheon lagged behind the rest.

Over the past six months too, most of the stocks in this sector have been on the rise, barring Rockwell Collins and The Boeing Co. (BA - Free Report) . Notably, L-3 Communications Holdings, Inc. (LLL - Free Report) witnessed the maximum increase, followed by General Dynamics.

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

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