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Defense Stock Roundup: U.S. House Approves Defense Policy Bill, LMT Tops Q2 Earnings

The defense stocks in the U.S. got a solid boost due to the U.S. House of Representatives passing the 2018 defense policy bill last Friday. The bill, reflecting a spending level of $696 billion, easily surpassed the nation’s current spending caps, which limited annual military spending to $549 billion. It even exceeded President Trump’s defense budget request proposed this March.

As a result, an upside was witnessed across the major indices in the Aerospace-Defense space, over the trailing five trading sessions. While the S&P 500 Aerospace & Defense (Industry) Index rose 1.4%, the Dow Jones U.S. Aerospace & Defense Index inched up 0.6% during this period.

Also, a generous flow of funds from Pentagon continued to boost growth in this industry. Among last week’s highlights, defense majors, Northrop Grumman Corp. NOC, Lockheed Martin Corp. LMT, United Technologies Corp. UTX and Honeywell International Inc. HON, clinched a handful of contracts from the U.S. Department of Defense. Meanwhile, Lockheed Martin released its better-than-expected quarterly results yesterday.

 (Read Defense Stock Roundup for Jul 11, 2017 here)

Recap of the Week’s Most Important Stories

1. Defense behemoth Northrop Grumman secured a contract worth $409 million for Next Generation Thermal, Power and Controls (NGT-PAC) program, from the U.S. Air Force. Work related to this deal is scheduled to be over by Jul 2024.

Per the terms, Northrop will develop revolutionary and innovative technologies to conduct applied research for enhancing knowledge and understanding of future power, thermal and controls requirements. The work will also include improving technological feasibility, and assessing their operability and productivity through proof of principal demonstrations (read more: Northrop Wins $409M Air Force Deal for NGT-PAC Project).

Meanwhile, the company’s Northrop Grumman Systems Corp. unit clinched a contract to offer overall operations, and maintenance of command and control capabilities for the U.S. Strategic Command (USSTRATCOM). Valued at $98 million, the deal was awarded by the 55th Contracting Squadron, Offutt Air Force Base, NE.

Per the deal, Northrop Grumman will provide software engineering, system engineering, testing, incorporation, installation, security engineering and administrative support. Additionally, the company will offer added support tasks necessary to give dependable, effective, and user-friendly, net-centric abilities. This, in turn, will contribute to the overall operations and maintenance of USSTRATCOM C2 capabilities for the commander of USSTRATCOM (read more: Northrop Grumman Unit Wins $98M Contract for USSTRATCOM).

2. United Technologies’ business unit, Pratt and Whitney, has won a contract worth $409 million for Next Generation Thermal, Power and Controls (NGT-PAC) program from the U.S. Air Force. Work related to this deal is scheduled to be over by Jul 2024.

Per the terms, the company will build revolutionary and innovative technologies to conduct applied research for enhancing knowledge and understanding of future power, thermal and controls requirements. The work will also include improving technological feasibility, and assessing their operability and productivity through proof of principal demonstrations.

3. Honeywell International clinched a modification contract worth $147 million from the U.S. Army for supplying total integrated engine revitalization hardware to meet the Anniston Army Depot production requirements. Work is scheduled to be over by Apr 30, 2019.

The company will utilize fiscal 2017 other funds to complete the work at Phoenix, AZ.

4. Pentagon’s largest contractor, Lockheed Martin’s business unit, Missiles and Fire Control, has won a modification contract worth $130.3 million from the U.S. Army. The deal involves foreign military sales (FMS) to Qatar, Saudi Arabia, the Republic of Korea, the United Arab Emirates and Taiwan. Work is scheduled to be over by Jun 30, 2020.

Per the terms, the company will produce the PATRIOT Advanced Capability-3 (PAC-3) Missile for fiscal 2017 with an intention to expand the total missile segment enhancement quantity by 35. In addition, it will provide 130 launcher modification kits with motor control units, parts library and missile segment enhancement storage and aging requirements, and cost and software data reporting requirement to the U.S. (read more: Lockheed Martin Unit Wins $130M FMS Deal for PAC-3 Missile).

Meanwhile, Lockheed Martin reported second-quarter 2017 earnings from continuing operations of $3.23 per share, beating the Zacks Consensus Estimate of $3.10 by 4.2%. Earnings also surpassed the year-ago period’s bottom-line figure by 10.2%.

In the reported quarter, total revenue came in at $12.69 billion, which surpassed the Zacks Consensus Estimate of $12.47 billion by 1.8%. Moreover, the company’s revenues increased 6.6% from $11.56 billion a year ago.

However, Lockheed Martin ended the second quarter (on Jun 26, 2017) with $92.1 billion in backlog, down 1.5% from $93.5 billion at the end of the first quarter (read more: Lockheed Beats on Q2 Earnings, Raises 17' EPS View).

Performance

Over the last five trading sessions, the major defense stocks have put up an impressive show, except Lockheed Martin and L3 Technologies Inc. LLL. Shares of Textron Inc. TXT gained the maximum, with its share price having inched up more than 1%, followed by Rockwell Collins Inc. COL.  

Over the last six months, the performance of the industry has been quite stellar. This time, The Boeing Company BA gained the most, with its shares rising 31.5%, followed by Rockwell Collins.

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-0.13%12.88%
BA0.48%31.53%
GD0.04%14.45%
RTN0.33%14.24%
NOC0.22%14.77%
COL0.86%22.29%
TXT1.06%0.92%
LLL-0.30%14.40%

 

What’s Up Next in This Space?

Honeywell is expected to post its second-quarter 2017 results on Jul 21.

United Technologies is set to report its second-quarter 2017 numbers on Jul 25.

Boeing, Northrop Grumman and General Dynamics Corp. GD are scheduled to report their second-quarter 2017 results on Jul 26.

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Northrop Grumman Corporation (NOC): Free Stock Analysis Report
 
Boeing Company (The) (BA): Free Stock Analysis Report
 
General Dynamics Corporation (GD): Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT): Free Stock Analysis Report
 
Rockwell Collins, Inc. (COL): Free Stock Analysis Report
 
Textron Inc. (TXT): Free Stock Analysis Report
 
Honeywell International Inc. (HON): Free Stock Analysis Report
 
United Technologies Corporation (UTX): Free Stock Analysis Report
 
Raytheon Company (RTN): Free Stock Analysis Report
 
L-3 Communications Holdings, Inc. (LLL): Free Stock Analysis Report
 
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