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Defense Stock Roundup: Lockheed, General Dynamics Make Big Wins; BAE Systems, Northrop in Focus

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With the Q3 earnings season starting off on a strong note, the magnitude of negative estimate revisions for the quarter has been lower than that witnessed in the preceding quarters. Coming to the aerospace and defense sector, although total earnings projections remain negative, the picture is relatively better when compared to other notable sectors like Energy, and Auto and Transportation.

A generous flow of funds from the Pentagon and speculations surrounding the upcoming releases by defense behemoths resulted in a 0.12% rally in the S&P 500 Aerospace & Defense (Industry) index, while the Dow Jones U.S. Aerospace & Defense Index gained 0.96% over the past five trading sessions.

Last week, defense primes Lockheed Martin Corp. (LMT - Free Report) and General Dynamics Corp. (GD - Free Report) clinched an impressive number of awards from the Pentagon. BAE Systems plc (BAESY - Free Report) and Northrop Grumman Corp. (NOC - Free Report) also hogged the spotlight.

(Read Defense Stock Roundup for Oct 12, 2016 here.)

Recap of the Week’s Most Important Stories

1. Pentagon’s largest defense contractor, Lockheed Martin’s Aeronautics business division clinched a modification contract, worth $743.2 million, from the U.S. Navy for the F-35 Lightening II Joint Strike Fighter aircraft. The original advance acquisition contract involved low-rate initial production of the Lot 9 F-35 Lightening II jets.

While Lockheed is the primary partner, the F-35 program receives support from an international team of leading aerospace majors, including Northrop Grumman, BAE Systems and United Technologies Corporation (UTX - Free Report) . (Read more: Lockheed Martin Wins $743M Navy Contract for F-35 Aircraft)

The company also secured a foreign military sales (FMS) contract worth $41.7 million from the U.S. Air Force for procuring, delivering and installing the Gap Filler Radar for the Kingdom of Jordan. Per the terms, it will provide two long-range radars and three upgrades to Jordan’s existing long-range radars.

Contract terms also cover the integration of new and upgraded radar into the overall command, control and communications system. Lockheed Martin has been partnering with Romania for a long time on a variety of programs, including these Gap Filler radars, which are complementary to the long-range FPS-117 radar (Read more: Lockheed Wins $42M Air Force Contract for Gap Filler Radar).

Meanwhile, Lockheed’s Mission Systems and Training business unit has nabbed a modification contract worth $31.1 million from the Navy. Under the terms of this deal, Lockheed will offer shipboard testing and integration services to support Japan’s Aegis modernization program.

Lockheed’s Aegis Ballistic Missile Defense (ABMD) is the world’s only maritime Ballistic Missile Defense System (BMDS) that can simultaneously attack land targets, submarines and surface ships, while protecting the fleet against aircraft, and cruise and ballistic missiles. The Aegis family has been the backbone of Japan’s defense since 1993. (Read more: Lockheed Martin Wins Deal to Provide Aegis Support to Japan)

2. Defense behemoth General Dynamics’ business unit – General Dynamics Mission Systems – recently clinched a follow-on contract worth $125.6 million, under which the company will offer program management and system support for Rescue 21, the U.S. Coast Guard's advanced command, control and direction-finding communications system.

Under the terms of this 36-month agreement, the company will also provide maintenance and sustainment engineering support for the Coast Guard Command, Control, and Communications Engineering Center.

Rescue 21 is one of General Dynamics' state-of-the-art communications network systems that enable the Coast Guard to execute its search and rescue (SAR) activities with greater agility and efficiency. Since its implementation, the Coast Guard has supported more than 90,000 SAR cases using Rescue 21. (Read more: General Dynamics Clinches $126M Deal for Rescue 21)

Further, General Dynamics’ subsidiary Electric Boat Corp. has won a contract, worth $176.2 million, from the U.S. Navy. Per the contract, Electric Boat will perform maintenance, repair, modifications, testing and usual work onboard USS Montpelier at the time of its planned interim dry docking.

Notably, USS Montpelier is a Los Angeles-class attack submarine. It is build by Newport News Shipbuilding, a unit of Huntington Ingalls Industries, Inc. (HII - Free Report) and Dry Dock Company. Electric Boat is a nuclear-capable shipyard that possesses the skill, knowledge and experience to execute submarine repair efforts for in-service nuclear-powered submarines, special mission submersibles, moored training ships and submarine support facilities. (Read more: General Dynamics Unit Wins $120M U.S. Navy Contract)

3. BAE Systems recently nabbed a five-year contract worth $52 million from the Navy. Per this agreement, the company will offer essential maintenance and testing support for various air traffic control and landing systems.

In particular, BAE Systems will test, evaluate, and certify Navy aircraft landing systems and subsystems. The company will also provide engineering and technical expertise to overhaul and restore the Navy’s systems and equipment.

4. Another defense major, Northrop Grumman clinched a contract worth $35.8 million from the Navy. Per this contract, the company will conduct risk reduction activities in support of the MQ-25 Unmanned Carrier Aviation Air System.

Services covered under the agreement include refining concepts and developing trade space for requirements generation in advance of the engineering and manufacturing development phase. Work related to this deal is scheduled to be over in Oct 2017. Majority of the work will be executed in Rancho Bernardo and Space Park, CA.

Last Week’s Performance

The major defense stocks put up a mixed show last week. In the last five trading sessions, The Boeing Company (BA - Free Report) gained the most, having increased 2.10%, followed by Rockwell Collins Inc. . On the other hand, L-3 Communications Holdings Inc. was the biggest loser, with its stock price declining 0.60%, followed by Raytheon Company (RTN - Free Report) .

However, over the past six months, most of the stocks in this sector have been on the rise, except for Rockwell Collins and Textron Inc.(TXT - Free Report) . L-3 Communications recorded the highest gain, followed by General Dynamics.

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

CompanyLast WeekLast 6 Months
LMT-0.28%2.54%
BA2.10%4.30%
GD0.27%10.76%
RTN-0.51%9.06%
NOC-0.10%8.23%
COL1.41%-10.67%
TXT0.37%-4.56%
LLL-0.60%19.9%

What’s Next in the Defense Sector?

Honeywell International Inc. (HON - Free Report) is set to release third-quarter 2016 financial results before the market opens on Oct 21.

Lockheed and United Technologies will announce their third-quarter 2016 numbers on Oct 25, before the opening bell.

Boeing, Northrop Grumman and General Dynamics are all scheduled to report third-quarter earnings on Oct 26, before the market opens.

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