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Defense Stock Roundup: U.S. Senate Okays Budget, Trade War, BA & LMT Win Deals

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While a generous flow of funds from the Pentagon and the fiscal 2019 defense budget sanction by the U.S. Senate on June 19 boosted the U.S. aerospace and defense industry, the escalating trade dispute between America and China created a major upheaval in the entire stock market.  Concerns that the dispute might grow more intense and drag down global economic growth, spooked investors worldwide.  

Therefore, a sudden sell-off was witnessed in the global stock market, which in turn overweighed the positive impact of the U.S. Senate’s approval for fiscal 2019 budget. This induced a decline in share price of major U.S. defense contractors in the trailing five trading sessions. Consequently, major indices of the Aerospace-Defense space — the S&P 500 Aerospace & Defense (Industry) index and the Dow Jones U.S. Aerospace & Defense index — decreased 4%, respectively, in the same period.

Among last week’s highlights, defense majors — The Boeing Company (BA - Free Report) , Lockheed Martin Corp. (LMT - Free Report) , General Dynamics Corp. (GD - Free Report) and Raytheon Company (RTN - Free Report) — secured a few orders from the Department of Defense’s daily funding session. American Outdoor Brands Corp. (AOBC - Free Report) also released its fourth-quarter fiscal 2018 results.

Recap of Last Week’s Key Stories

1. Boeing won a $1.52 billion contract to provide system configuration sets and associated services for life-cycle upgrading of the F/A-18A/B, C/D, E/F and EA-18G aircraft. The deal will cater to the U.S. Navy and foreign military sales (FMS) customers. Work related to the contract is expected to be completed in June 2023.

Per the terms of the agreement, Boeing will provide deliverables and services such as FMS unique system configuration sets, system improvement and demonstration products, laboratory upgrades, and studies and analysis. The contract was awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA.

Majority of the work will be performed in St. Louis, MI. Fiscal 2018 working capital funds (Navy) will be utilized for completing the task (read more: Boeing Wins $1.5B Navy Deal for F/A and E/A18 Aircraft).

Boeing also clinched a contract worth $179 million for procuring system configuration set H12K to support Kuwait government’s fleet of F/A-18E/F Aircraft. Work related to the deal is scheduled to be completed by September 2022.

The contract was awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA. Per the terms of the deal, Boeing will procure H12K for software development, modification, integration and testing of the Kuwait Air Force configured F/A-18E/F Aircraft.

Work under the agreement will be executed in St. Louis, MO (read more: Boeing Wins $179M Deal to Aid Kuwait's Fleet of F/A-18 Jets).

2. Lockheed Martin’s Aeronautics division secured a $503.2 million modification contract for providing air vehicle initial spare parts to support the F-35 program. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Per the deal, Lockheed Martin will provide initial spares that include F-35 Lightning II deployment spares packages, afloat spares packages and associated consumables. The modification includes 21% of the work for the U.S. Air Force, 14% for the U.S. Navy, 18% for the U.S. Marine Corps and 47% for the non-DoD participants.

Work related to the deal is expected to be over by December 2023 (read more: Lockheed Martin Wins $503M Deal for F-35 Lightning II Spares).

3. General Dynamics’ business division, Electric Boat, secured a modification contract for economic ordering quantity material associated with the fiscal 2019-2023 Virginia class submarines. Work related to the deal is scheduled to be completed by January 2019.

Valued at $225 million, the contract was awarded by Naval Sea Systems Command, Washington, D.C. Fiscal 2018 shipbuilding and conversion (Navy) funds will be utilized to finance the task (read more: General Dynamics Wins $225M Navy Deal for Nuclear Submarines).

4. Raytheon’s Missile Systems business unit won a $93.7 million modification contract for Excalibur 155mm projectiles. The contract was awarded by the U.S. Army Contracting Command, NJ.

Work related to the deal will be performed in Karlskoga, Sweden; South Plymouth and Glenrothes, the United Kingdom; and various other locations across the United States.

The agreement is expected to get completed by Sep 30, 2020 (read more: Raytheon Wins $94M Army Deal for Excalibur 155mm Projectiles).

5. American Outdoor Brands reported fourth-quarter fiscal 2018 (ended Apr 31, 2018) results. The company’s adjusted earnings per share of 24 cents surpassed the Zacks Consensus Estimate of 11 cents by 118.2%.

Total sales in the quarter came in at $172 million, lagging the Zacks Consensus Estimate of $182 million by 5.5%.

Cash flow from operating activities for the fiscal year (ended Apr 30, 2018) was $61.6 million compared with $123.6 million a year ago (read more: American Outdoor Brands Q4 Earnings Top, Revenues Lag).

Performance

Over the last five trading sessions, the defense biggies put up a dismal show. Boeing lost the most with a 5.6% decline in its share price, followed by Northrop Grumman.

However, over the last six months, the industry has put up a mixed performance. Keeping up with its usual trend, Boeing once again gained the most, with its shares increasing 16.2%, while L3 Technologies lost the most with a 12.8% decline in its share price.

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
LMT-3.66%-4.68%
BA-5.55%16.15%
GD-2.23%-12.08%
RTN-3.07%-10.16%
NOC-3.24%1.78%
COL-2.15%-0.14%
TXT-1.00%-2.72%
LLL-1.30%-12.78%



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