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Defense Stock Roundup: US-Canada Trade Talk, BA's Deal Wins, AOBC Earnings in Focus

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The Aerospace-Defense industry witnessed a generous flow of funds from the Pentagon over the trailing five trading sessions. This should have led major indices to end in the green. However, investors did not seem much encouraged as evident from the dip in major market indices last week.

While on the one hand, the two top economies of the world continue to remain at loggerheads, fueling trade war tensions, on the other hand, tightening monetary policy adopted by the Federal Reserve is forcing investors to be skeptical about Wall Street’s gain. Moreover, no definitive solution came out of the talks between Canada and the United States to renegotiate the North American Free Trade Agreement (NAFTA).

These macroeconomic factors outweighed the contract wins that the defense stocks witnessed in the past five trading sessions. The S&P 500 Aerospace & Defense (Industry) index slipped 0.8% while the Dow Jones U.S. Aerospace & Defense index dipped 0.6% in the aforementioned period.

Among the last week’s highlights, defense majors The Boeing Company (BA - Free Report) , L3 Technologies, Inc. (LLL - Free Report) and Lockheed Martin Corp. (LMT - Free Report) secured a number of notable orders from the Department of Defense’s daily funding session. Meanwhile, American Outdoor Brands Corporation (AOBC - Free Report) and HEICO Corporation (HEI - Free Report) announced their quarterly results.

(Read: Defense Stock Roundup for Aug 27, 2018 here)

Recap of Past Week’s Important Stories

1. Boeing clinched a contract worth $805.3 million for supplying the design, development, fabrication, test, verification, certification, delivery, and support of four MQ-25A unmanned air vehicles (UAV). The majority of the work related to the deal will be carried out in Louis, MO.

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the agreement, Boeing will also integrate the UAVs into the carrier air wing to offer an initial operational capability to the Navy.

The deal is expected to be over by August 2024 (read more: Boeing Secures $805M Deal to Build MQ-25A UAV for US Navy).

The company won another contract worth $208.3-million for the manufacturing of F-15 Legion Pod infrared search-and-track (IRST) pods. The contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Ohio.

Per the terms of the deal, Boeing will conduct engineering, manufacturing, integration, testing and deployment of F-15 Legion Pod IRST Pods. Work related to the deal will be performed in St. Louis, MI and Orlando, FL and is expected to be completed by Nov 30, 2020 (read more: Boeing Wins $208M Deal for Developing F-15 Legion IRST Pods).

2. L3 Technologies secured a contract worth $454 million for the Electro-Optic/Infrared (EO/IR) — Laser Designator Payload. The contract was awarded by the U.S. Army Contracting Command, Aberdeen Proving Ground, MD.

Work related to the deal is expected to be completed by Aug 28, 2023 (read more: L3 Technologies Wins $454M Contract for EO/IR Laser Payload).

3. Lockheed Martin’s Aeronautics business division won a $250.4-million modification contract involving pricing for special tooling and special test equipment to support low-rate initial production (LRIP) of the 11th lot of F-35 Lightning II jets. Work related to the deal is expected to be completed by December 2021.

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. It includes 34.5% of the work for the U.S. Air Force, 17.9% for the U.S. Marine Corps, 16.5% for the international partners, 16.5% for FMS customers and 14.71% for the U.S. Navy (read more: Lockheed Martin Wins $250M Deal for F-35 Lightning Program).

4. American Outdoor Brands’ first-quarter fiscal 2019 (ended Jul 31, 2018) adjusted earnings of 21 cents per share surpassed the Zacks Consensus Estimate of 12 cents by 75%. The company’s total sales were $139 million, which exceeded the Zacks Consensus Estimate of $138 million by 0.6%.

In the quarter under review, total operating income came in at $13.5 million against operating loss of $3.2 million incurred in the comparable quarter last year.

The company has raised its outlook for fiscal 2019. It currently expects to generate adjusted earnings in the band of 62-66 cents per share compared with 40-50 cents per share projected earlier (read more: American Outdoor Brands Beats on Q1 Earnings & Sales).

5. HEICO Corp. reported third-quarter fiscal 2018 earnings of 49 cents per share, which surpassed the Zacks Consensus Estimate of 45 cents by 8.9%. Quarterly net sales of $465.8 million outpaced the Zacks Consensus Estimate of $441 million by 5.7%.

As of Jul 31, 2018, cash provided by operating activities was $204.7 million compared with $179.3 million as of Jul 31, 2017.

HEICO estimates fiscal 2018 net sales growth in the range of 15-16%, up from the prior estimate of 13-14% (read more: HEICO Q3 Earnings Surpass Estimates, FY18 View Up).

Performance

Over the last five trading sessions, defense biggies put up a mixed show. L3 Technologies gained the most, with its share price inching up 1.1%, while Lockheed Martin, Boeing and Raytheon’s shares suffered a decline.

The industry's performance over the last six months has been mostly dismal, except Textron and L3 Technologies. Northrop Grumman lost the most, with its share price declining more than 12%.

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-1.14%-6.24%
BA-1.89%-0.55%
GD0.42%-13.41%
RTN-0.32%-7.41%
NOC0.15%-12.99%
COL-0.13%-0.02%
TXT0.58%19.72%
LLL1.13%4.13%



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