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Defense Stock Round Up: TXT, HON, UTX Top Q2 Earnings, HII, BA, Bag DoD Deals

The Q2 earnings season for this year is in full swing, with more than 800 companies set to report their quarterly results this week. These include 183 S&P 500 members. As of July 25, 128 S&P 500 members have released their quarterly numbers. Of these, 77.3% came up with an earnings beating figure, while 70.3% surpassed revenue estimates.

As far as the broader Aerospace sector is concerned, total earnings for companies in this space are expected to be up 49.8% from the same period last year on 0.8% lower revenues.

As per the last five trading sessions, major indices of the Aerospace-Defense space are found to have recorded growth. This is probably supported by expectations of an earnings upside from the majority of the defense biggies lined up to release their numbers this week. A generous flow of funds from Pentagon also benefitted the industry over the trailing five sessions. While the S&P 500 Aerospace & Defense (Industry) Index inched up 0.5%, the Dow Jones U.S. Aerospace & Defense Index rose 0.7% during this period.

Among last week’s highlights, defense primes, Textron Inc. TXT, Honeywell International Inc. HON and United Technologies Corp. UTX, have released their quarterly figures. Meanwhile, Lockheed Martin Corp. LMT, Huntington Ingalls Industries, Inc. HII and The Boeing Company BA secured a few contracts from the Department of Defense (DoD).

(Read Defense Stock Roundup for Jul 19, 2017 here)

Recap of Last Week’s Key Stories

1. Diversified U.S. conglomerate, Textron’s second-quarter 2017 adjusted earnings from continuing operations surpassed the Zacks Consensus Estimate by 9.1%. Total revenue also exceeded expectations, but by a smaller margin of 0.3% only.

Segmental performance during the second quarter was mixed, with Textron Aviation and Textron Systems generating lower revenues compared with the year-ago figure, while Bell and Industrial units witnessed improved revenue growth.

As of Jul 1, 2017, Textron’s cash and cash equivalents were $938 million compared with $1,137 million as of Dec 31, 2016. With respect to outlook, Textron reiterated its 2017 bottom-line guidance in the range of $2.40–$2.60 per share (read more: Textron Tops Q2 Earnings, Retains '17 EPS Outlook).

2. United Technologies’ second-quarter earnings as well as net sales comfortably surpassed the Zacks Consensus Estimate. Results were also impressive year over year.

However, operating profit margin contracted 70 basis points (bps) year over year. The company exited the second quarter with cash and cash equivalents of $9,345 million, higher than $7,157 million recorded at the end of 2016.

Coming to outlook for the full year, United Technologies raised the lower end of its 2017 earnings guidance. It currently expects adjusted earnings to lie within the $6.45–$6.60 per share range, as against the previously estimated range of $6.30−$6.60 (read more: United Technologies Tops Q2 Earnings, Lifts 2017 View).

3. Honeywell International’s second-quarter 2017 adjusted earnings and revenues surpassed the Zacks Consensus Estimate by 1.1% and 2.5% respectively. Year over year, growth was observed across both fronts as well.

Segment-wise, organic growth was witnessed all along. At the end of the quarter, free cash flow was $1,214 million compared with $1,302 million in the year-ago quarter.

In terms of outlook, Honeywell raised its earnings and revenue guidance for 2017. Its earnings per share is currently expected in the range of $7.00−$7.10, while revenues are expected in the range of $39.3−$40 million (read more: Honeywell Beats Q2 Earnings and Revenue Estimates).

4. Military shipbuilder, Huntington Ingalls’ unit, Newport News Shipbuilding, secured a modification contract to procure additional long-lead-time material for USS Enterprise (CVN 80). Work related to this deal will be completed by Jan 2024.

Valued at $148.7 million, the contract has been awarded by the Naval Sea Systems Command, Washington, D.C. Work related to the contract will be carried out in Newport News, VA.

The USS Enterprise (CVN 80), Gerald R. Ford class’ third aircraft carrier, bears the name of the Navy’s first nuclear-powered aircraft carrier, USS Enterprise (CVN 65). Notably, the Enterprise is scheduled to be constructed and be operational by 2027 (read more: Huntington Ingalls Wins $149M Navy Deal for USS Enterprise).

5. Aerospace giant, Boeing clinched a five-year base contract worth $122.8 million, with one five-year option period for providing aircraft spare parts to the Defense Logistic Agency of the U.S. Work related to the deal will be executed in Missouri, with an expected completion date of Dec. 30, 2020.

6. Defense prime, Lockheed Martin’s Rotary and Mission Systems business segment has won a modification contract to exercise an option for engineering services and support of the Integrated Submarine Imaging Systems program.

Valued at $119.7 million, this deal was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms, Lockheed Martin will offer design, development, testing, reverse engineering, technology insertion/refreshment, engineering services, field engineering services and system support.

The majority of the work related to the contract will be carried out in Manassas, VA, while the entire work is scheduled to be over by Sep 2018.

Performance

Over the last five trading sessions, most of the defense biggies have put up a solid show, except Textron and Northrop Grumman Corp. NOC. Shares of L3 Technologies, Inc. LLL gained the maximum, with its share price having inched up 4.12%, followed by Boeing.

However, over the last six months, the performance of the entire industry has been quite stellar. This time, Boeing gained the most, with its shares rising 26.95%, followed by Rockwell Collins Inc. COL.

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
LMT0.75%15.47%
BA1.68%26.95%
GD0.74%16.11%
RTN0.84%15.47%
NOC-0.26%14.93%
COL0.06%20.83%
TXT-0.42%5.48%
LLL4.12%17.54%

 

What’s Up Next in This Space?

Raytheon Company RTN and L3 Technologies are scheduled to report their second-quarter 2017 results on Jul 27.

Rockwell Collins is expected to release its third-quarter fiscal 2017 results on Jul 28.

Harris Corporation HRS is set to reveal its fourth-quarter fiscal 2017 results on Aug 1.

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Northrop Grumman Corporation (NOC): Free Stock Analysis Report
 
Boeing Company (The) (BA): Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT): Free Stock Analysis Report
 
Huntington Ingalls Industries, Inc. (HII): 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
 
L-3 Communications Holdings, Inc. (LLL): Free Stock Analysis Report
 
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