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Defense Stock Roundup: Stocks Gain as North Korea Attacks Japan, COL-UTX Nears Merger

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Wall Street witnessed a decent rally of the defense stocks at the onset of this week owing to North Korea’s missile launch that flew over Japan's Hokkaido island before crashing in to the sea. North Korea’s President justified the move as an action to counter the United States and South Korean military drills. In retaliation, South Korea dropped bombs on Korean peninsula.

Notably, this event once again led to fresh altercations between the United States and North Korea. Defense stocks have been on growth trajectory since the beginning of the last month due to Trump’s “fire and fury” response against North Korea’s move. Also his plan to increase military spending in Afghanistan provided ample impetus to the stocks.

A generous flow of funds from the Pentagon has also been boosting defense stocks’ prospects.

All these factors led the major indices of Aerospace sector to end in the green, in the last five trading sessions. Notably, the S&P 500 Aerospace & Defense (Industry) Index rose 1.3%, while the Dow Jones U.S. Aerospace & Defense Index gained 1.4% during this period.

Among last week’s highlights, defense primes Raytheon Company (RTN - Free Report) , Lockheed Martin Corporation (LMT - Free Report) , Textron Inc. (TXT - Free Report) and The Boeing Company (BA - Free Report) secured notable contracts from the Department of Defense (DoD). Moreover, United Technologies Corporation (UTX - Free Report) and Rockwell Collins Inc. (COL - Free Report) neared their likely merger deal, while Harris Corporation (HRS - Free Report) announced dividend hike.

(Read Defense Stock Roundup for Aug 25, 2017 here)

A Look Back at Last Week’s Key Stories

1. Missile-maker Raytheon’s business segment, Missile Systems, has secured a modification contract for manufacturing 17 Standard Missile-3 (SM-3) Block IIA missiles. Work related to the deal is expected to be over by March 2020 and will be carried out in Tucson, AZ.

Valued at $614.5 million, the contract was awarded by the Missile Defense Agency, Dahlgren, VA. Per the terms of the agreement, Raytheon will provide production and engineering support, obsolescence monitoring, technical baseline engineering support as well as render quality assurance for the SM-3 Block IIA missiles. The company will also provide containers for the missiles (read more: Raytheon Wins $615M Deal for SM-3 Block IIA Missiles).

The company won another contract from the U.S. Navy to support the Maritime Strike Tomahawk Program. Work is scheduled to be over by August 2029, with its majority set to be executed in Tucson, AZ;

Per the $119 million contract, Raytheon will offer services related to analysis, trade studies, architecture, modeling, simulation development, evaluation, and prototyping activities. These services will integrate seeker suite technology and processing capabilities into the Tactical Tomahawk Block IV All-Up-Round missile system (read more: Raytheon Wins Contract Worth $119M for Tomahawk Program).

2. Pentagon’s largest defense contractor, Lockheed Martin’s, business unit, Missiles and Fire Control (MFC), won a modification contract worth $547.9 million from the U.S. Army, to support production requirement of a Hellfire II missile.

Per the deal, Lockheed Martin will provide support to 7,358 Hellfire II tactical missiles in containers, in various air-to ground missiles models. Work is scheduled to be completed by Sep 30, 2020 and will be performed in Orlando, FL (read more: Lockheed Martin Unit Wins $548M Deal for Hellfire II Missile).

3. Multi-industry conglomerate Textron’s AAI Corporation secured a contract worth $499 million for the Aerospace Systems Air Platform Technology Research program contract from the U.S. Air Force. Notably, it is the fourth company to receive this award from Pentagon.

Per the deal, AAI Corp. will be responsible for providing quality research to Air Force in developing, demonstrating, integrating and transitioning new air vehicle technologies and systems. Such technology developments, in turn, will offer cost-efficient air vehicle platforms that will deliver weapons and cargo worldwide with precision.

Work is anticipated to be completed by Aug 31, 2025 and will be carried out in Hunt Valley, MD (read more: Textron's Unit Secures $499M Contract From U.S. Air Force).

4. Aerospace giant Boeing clinched a contract worth $323.5 million, to supply spare parts of F/A-18 A-F and F/A-18 aircraft. It has been awarded by the Defense Logistics Agency Aviation, Philadelphia, PA.

The deal includes a five-year base contract with one five-year option period. Work related to the contract is scheduled to be completed by Dec 30, 2023 and will be carried out at Missouri (read more: Boeing Wins $324M Deal for F/A-18 Aircraft Spare Parts).

5. Rockwell Collins is likely to close a deal, per which it is expected to be acquired by United Technologies for more than $20 billion, according to the Wall Street Journal. United Technologies had submitted an offer to acquire Rockwell on Aug 4.

However, this deal has not yet been confirmed as both companies are in talks and currently nearing the closure of the deal.

If the transaction is finalized, Rockwell Collins’ commercial and military aircraft avionics business will merge with United Technologies' wide portfolio, which includes aircraft engines, structures, cockpit and cabin controls, ventilation systems and other electronic and mechanical devices used in aviation (read more: Rockwell Collins Nears $20B Deal with United Technologies).

7. Harris Corporation has raised quarterly dividend by 8% to 57 cents per share (or $2.28 annually) from 53 cents (or $2.12 annually). Approved by the company’s board of directors, this new payout will be made on Sep 22, 2017, to stockholders of record as on Sep 8. This is the 16th annual dividend increase by the company.

Moreover, William M. Brown, Chairman, President and CEO of the company, anticipates 2018 to be a year of growth and is also hopeful about its long-term outlook. The company now expects earnings per share (on an adjusted basis) for fiscal 2018 in the band of $5.85-$6.05. Revenues for the same are projected in the range of $6.02-$6.14 billion (read more: Harris Rewards Shareholders With 8% Dividend Hike).

Performance

Over the last five trading sessions, most of the defense biggies have put up an impressive show. Notably, shares of Textron surged the maximum, 2.23%, in the last five days, followed by Raytheon.

Over the last six months, as well, the entire industry has put up a stellar performance. Rockwell Collins gained the most, with its shares rising 36.72%, followed by Boeing.

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
LMT0.48%14.56%
BA0.39%32.97%
GD0.51%6.08%
RTN1.90%18.07%
NOC0.74%10.17%
COL1.21%37.10%
TXT2.23%3.78%
LLL0.38%7.82%

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