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Defense Stock Roundup: LLL Tops, SPR & HII Lag Q1 Estimates, BA to Buy KLX

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With more than 409 S&P 500 companies having released their quarterly results, the Q1 earnings season is set to enter its last leg. As of May 4, of these 409 index members which revealed their earnings numbers, 78% delivered an earnings beat, while 75.6% surpassed revenue estimates.

Coming to the Zacks Aerospace sector’s performance for Q1, projections for stocks in this space indicate improvement over the prior-quarter’s performance. Notably, earnings of this space are expected to improve 37.8% on 7.8% higher sales, compared to fourth-quarter’s earnings growth of 31.8% on 7.3% sales increase.

Such upbeat projections provided a major impetus to the defense stocks over the last five trading sessions. Consequently, major indices of the Aerospace-Defense space — the S&P 500 Aerospace & Defense (Industry) index as well as the Dow Jones U.S. Aerospace & Defense index rose 3.2% over the aforementioned period.

As expected, quarterly results from a number of Aerospace-Defense majors — L3 Technologies, Inc. (LLL - Free Report) , Spirit AeroSystems, Inc. (SPR - Free Report) , Leidos Holdings, Inc.  (LDOS - Free Report) , Huntington Ingalls Industries, Inc. (HII - Free Report) and Harris Corporation (HRS) — remained a key area of investors focus. In other news, Boeing (BA - Free Report) is set to buy KLX, Inc. .

 (Read Defense Stock Roundup for May 1, 2018 here)

Recap of Last Week’s Key Stories

1. L3 Technologies posted first-quarter 2018 earnings of $2.34 per share from continuing operations, surpassing the Zacks Consensus Estimate of $1.99 by 2.2%. In the quarter under review, total revenues came in at $2.37 billion outpacing the Zacks Consensus Estimate of $2.33 billion by 1.7%.

Funded orders in first-quarter were $2.6 billion, reflecting a 10% rise compared with the last year. Funded backlog was $8.8 billion as of Mar 30, 2018, up 3% from $8.5 billion as of Dec 31, 2017.

L3 Technologies now expects its 2018 earnings in the range of $9.40-$9.60 per share compared with $9.30-$9.50 guided earlier (read more: L3 Technologies Beats on Q1 Earnings, Ups '18 EPS View).

2. Spirit AeroSystems reported first-quarter 2018 earnings of $1.10 per share, which missed the Zacks Consensus Estimate of $1.35 by 18.5%. Total revenues of $1,736 million in the first quarter surpassed the Zacks Consensus Estimate of $1,703 million by 2%.

As of Mar 29, 2018, Spirit AeroSystems had $437.9 million in cash and cash equivalents compared with $423.3 as of Dec 31, 2017.

Spirit AeroSystems reiterated financial guidance for 2018 (read more: Spirit AeroSystems Q1 Earnings Miss, Revenues Up Y/Y).

3. Leidos Holdings reported first-quarter 2018 adjusted earnings of $1.03 per share, which came in line with the Zacks Consensus Estimate. The company posted total revenues of $2,443 million in the quarter, which missed the Zacks Consensus Estimate of $2,596 million by 5.9%.

At the end of the first quarter, the company’s backlog of signed business orders was $17.6 billion, of which $4.6 billion was funded.

Leidos Holdings continues to expect adjusted earnings per share in the range of $4.15-$4.50 on revenues of $10.25-$10.65 billion (read more: Leidos Holdings Q1 Earnings Meet Estimates, Sales Lag).

4. Huntington Ingalls’ first-quarter 2018 earnings of $3.48 per share missed the Zacks Consensus Estimate of $4.07 by 14.5%.Total revenues came in at $1.87 billion, which surpassed the Zacks Consensus Estimate of $2.01 billion by 6.2%.

Huntington Ingalls received new orders worth $2.6 billion in first quarter. As a result, the company’s total backlog reached $22 billion as of Mar 31, 2018.

Cash from operating activities, at the end of first-quarter 2018, was $120 million compared with $98 million at the end of 2017’s first quarter (read more: Huntington Ingalls Q1 Earnings Miss, Revenues Up Y/Y).

5. Harris Corp.’s adjusted earnings from continuing operations were $1.67 per share compared with $1.38 in the year-earlier quarter, comfortably beat the Zacks Consensus Estimate of $1.62. Revenues for the quarter increased 5% year over year to $1,568 million, which also exceeded the Zacks Consensus Estimate of $1,548 million.

At the end of the fiscal third quarter, the company had cash and cash equivalents of $443 million with net long-term debt of $3,391 million.

The company tweaked its projection for fiscal 2018 owing to its impressive performance in the fiscal third quarter (read more: Harris Beats on Q3 Earnings & Revenues, Ups Guidance).

6. Boeing announced on May 1 that the company has signed an agreement to purchase aerospace solutions provider — KLX Inc. — for $4.25 billion, in an attempt to enhance its services business.

KLX is a major independent provider of aviation parts and services in the aerospace industry. No doubt its addition will enable Boeing to support all customer fleet types for the commercial, military and defense and business and general aviation markets.

Boeing expects the takeover to have a neutral earnings impact through 2019 and accretion thereafter, with annual cost savings growing to approximately $70 million by 2021 and further improvements realized over time. The deal is expected to be over by third quarter of 2018.

Performance

Over the last five trading sessions, the defense biggies put up a solid show. Northrop Grumman gained the most with its share price having improved 7.2% in this period.

Over the last six months as well, the entire industry has put up a stellar performance, except Northrop Grumman and Rockwell Collins. Keeping up with its usual trend, Boeing once again gained the most, with its shares surging 27.4%, followed by Textron.

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
LMT6.06%2.71%
BA4.40%27.41%
GD1.91%0.38%
RTN4.12%13.77%
NOC7.18%-3.59%
COL0.81%-0.14%
TXT4.51%18.32%
LLL2.88%2.84%

 

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