Textron Wins South Korean Deal - Analyst Blog

A Textron Inc. TXT unit, Textron Defense Systems, was chosen by South Korea for the supply of anti-armor weapons to strengthen its arsenal in response to North Korea's growing nuclear threat. The contract has a value of $190.1 million.

This foreign military sales FMS firm-fixed-price contract calls for Textron to deliver 361 war-ready versions of the anti-armor Sensor Fuzed Weapons (SFW), 18 Wind Corrected Munition Dispenser (WCMD) tail kits, and 7 trainers to South Korea. The deliveries are slated to complete by 2016.

Textron Defense Systems' SFW is an aircraft-dropped weapon that detects and defeats a range of moving and stationary land and maritime target threats over a wide area with least collateral damage. The targets can be heavy armored battle tanks or soft-skinned vehicles or maritime threats. This weapon has already been verified by the U.S. government and achieved over 99% reliability during its flight test program. This will be the first SFW in South Korea's repertoire.

The WCMD system is a U.S. tail kit that is used with the Tactical Munitions Dispenser family of cluster bombs to convert them to precision-guided weapons. The Republic of Korea is one of the clients for Textron's WCMD weapon. Others include India, Taiwan and Saudi Arabia.

Textron is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. The company's geographically diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk.

In a climate of budget cuts and sequestration, FMS offers some respite and an alternative source of revenue for the defense companies. The defense sector is also trying to plug the challenges with acquisitions and business diversification.

Textron is known to acquire assets that have the same line of business and are accretive immediately. Acquisitions in the past have helped the company to expand its core offerings.

In 2013, the company introduced important new products while investing in future growth. Investor focus in 2014 would be on the potential synergies from these investments.

In spite of these initiatives Textron, like its peers Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC, still has to ward off defense budget cuts and political uncertainty.

The stock currently carries a Zacks Rank #3 (Hold). Stock to look out for in this space is Embraer SA ERJ with a Zacks Rank #1 (Strong Buy).