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Analyst Blog

The startling victory of Donald Trump bodes well for the Aerospace and Defense sector as it has lifted expectations of increased military spending. Mixed performance at the bourses and a moderate flow of funds from the Pentagon added to the optimism.

Consequently, major indices for the aerospace and defense sector ended in the green last week. While the S&P 500 Aerospace & Defense (Industry) index rallied 7.8%, the Dow Jones U.S. Aerospace & Defense Index gained 2.1% in the trailing five trading sessions.

Among last week’s highlights, defense primes Lockheed Martin Corp. (LMT - Free Report) , Raytheon Company (RTN - Free Report) , L-3 Communications Holdings (LLL - Free Report) and Leidos Holdings, Inc. (LDOS - Free Report) – clinched a number of deals from the U.S. Department of Defense (DoD).

(Read Defense Stock Roundup for Nov 8, 2016 here.)

Recap of the Week’s Most Important Stories

1. Pentagon’s largest defense contractor Lockheed Martin’s Rotary and Mission Systems business division secured a modification contract for providing engineering and technical support for the Acoustic Rapid Commercial-Off-The-Shelf (COTS) Insertion (A-RCI) systems. Valued at $125.2 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the deal, Rotary and Mission Systems will offer engineering services to facilitate the development and production of the COTS Insertion A-RCI Systems.

A-RCI is an open-architecture sonar system used to maintain an advantage in acoustic detection of threat submarines. This system helps the U.S. Navy in searching, detecting and tracking submarine and surface vessels in open-ocean and littoral sea environments without being counter-detected. (Read more: Lockheed Martin Gains $125M Navy Deal for A-RCI System).

Rotary and Missions Systems also won a foreign military sales contract worth $48.6 million. The contract was awarded by the Army Program Executive Office Simulation, Training and Instrumentation, Orlando, FL. Per the terms of the deal, the company will upgrade the M1A2S Advanced Gunnery Training System (AGTS) in Saudi Arabia.

AGTS is a simulator designed by Lockheed Martin to train individuals, crews, platoons and companies in precision gunnery skills, enabling trainees to transition quickly to live fire or combat gunnery. The AGTS provides training on procedures, basic skills, crew coordination and crew drills. Section and platoon members practice target recognition, fire control and distribution while engaged by targets.

2. Defense behemoth Raytheon’s Missile Systems business segment nabbed a contract worth $76.1 million for providing vehicles and support equipment for the Lot 10 Miniature Air Launched Decoy Jammer (MALD-J). The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, FL.

Raytheon’s MALD is a low-cost, air-launched programmable craft that helps deceive enemy radars and integrated air defense systems by duplicating all combat flight profiles and radar signatures of the aircraft.MALD-J is the jammer variant of the basic decoy system.  Given that MALD-J is the only stand-in jammer to enter production at present, Raytheon is poised to gain significant traction in the aerospace and defense sector. (Read more: Raytheon Wins $76M Air Force Deal for Anti-Radar System).

Raytheon has also won a contract worth $48 million for providing maintenance, repair and support services for the advanced high-frequency secure, mobile, anti-jam, reliable tactical-terminal system. The contract was awarded by the Army Contracting Command, Fort Monmouth, NJ. Work related to the contract is scheduled to be over by Nov 15, 2019.

3. Leidos clinched a modification contract worth a $71.1 million for continued operations, sustainment and integration for the Saturn Arch quick reaction capability. The deal was awarded by Army Contracting Command, Adelphi, MD and the work associated with it is expected to be over by Sep 16, 2019.

Saturn Arch, an aerial improvised explosive device (IED)-neutralizing platform, was introduced to implement intelligence, surveillance and reconnaissance capabilities on a special aircraft with state-of-the-art sensor technology to identify and assist in removing IEDs from the battlefield in Afghanistan.

4. Defense major L-3 Communications secured a contract worth $49.5 million for the procurement of binocular night vision devices (BNVD). The deal was awarded by the Naval Surface Warfare Center, Crane Division, Crane, IN and it has a five-year ordering period.

These next-generation BNVDs will provide Special Operations Forces with enhanced visual acuity in low light conditions, increasing both their lethality and survivability and ensuring mission success. Work related to the deal is expected to be over by Nov 2021.

Last Week’s Performance

The majority of the prime defense companies put up a mixed show last week. While Lockheed Martin and Rockwell Collins Inc. (COL - Free Report) gained more than 2% in last five trading sessions, Raytheon and The Boeing Company (BA - Free Report) lost 1%.

However, over the past six months, most of these stocks scored high returns, except for Rockwell Collins. Textron Inc. (TXT - Free Report) led the show, followed by General Dynamics Corp. (GD - Free Report) .

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
LMT2.36%8.39%
BA-0.85%9.17%
GD-0.40%14.08%
RTN-1.05%11.29%
NOC0.09%13.75%
COL2.47%-2.79%
TXT1.23%17.27%
LLL-0.17%10.36%

What’s Next in the Defense Sector?

Harris Corporation (HRS - Free Report) will attend the Geostationary Operational Environmental Satellite R-Series Launch, which will be held at Cape Canaveral, FL on Nov 19.

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