Northrop, Lockheed, GD Win DoD Deals - Analyst Blog

Defense majors picked up small ticket programs from the U.S. Department of Defense's (DoD) funding list on Friday, May 30, 2014.

Amongst the gainers, in terms of number of contracts, Northrop Grumman Corp. NOC won three separate deals, for a total value of $71.9 million. Of these, the intelligence, surveillance, reconnaissance and targeting (ISR&T) unit won a $38.0 million contract to provide logistics support and engineering services to the Joint Tactical Ground Station (JTAGS) system Block 1 fielded units and related exerciser and institutional training suites. The task is expected to be completed by Jul 31, 2018.

The second win for Northrop was a modification contract for $20.9 million. This contract calls for Northrop to provide integration services for mission packages to the U.S. Navy that will deploy from and integrate with the Littoral Combat Ship (LCS). This is necessary to evaluate system maturity that will help to perk up mission capability in identified mission areas. LCS mission packages will be optimized for flexibility in the littorals. The work is expected to be completed by Jan 2015.

The third contract valued at $13.0 million is also a modification contract related to the Enhanced Integrated Sensor Suite (EISS) Timing and Control TAC Module A-3 replacement effort. Per this contact, Northrop will have to complete flight testing required for ensuring the EISS TAC module. The company is also entitled to ensure other related software developments that are compatible with the Global Hawk aircraft in form, fit and function. The work under this contract is slated for completion by Jun 30, 2015.

Apart from Northrop, the pentagon's prime contract Lockheed Martin Corp. LMT has secured a modification contract, worth $41.2 million, for the Highly Elliptical Orbit (HEO) Transition to Operations. This contract from the U.S. Air Force calls for Lockheed to add HEO-4 launch and early on-orbit test (LEOT) capabilities to the HEO-3 LEOT baseline. The task is expected to be completed by Sep 30, 2018.

General Dynamics Corp. GD also received a $12.7 million contract. As per this modification contract, General Dynamics will provide added explosive cartridges, explosive d 5", explosive d dye filled, improved conventional munitions, medium caliber and fuses. The contract is expected to be completed by May 27, 2015.

The ongoing sequestration wave has hit the U.S. defense sector with prominent contractors like Lockheed, Northrop or General Dynamics having to make do with low-value contracts. Although budget cuts have diminished the flow of large-priced contracts in the U.S., the prime sector players are effectively battling sequestration with their diversified product offerings and strategic partnerships.

Currently, Northrop and General Dynamics hold a Zacks Rank #3 (Hold), while Lockheed carries a Zacks Rank #2 (Buy). Embraer SA ERJ looks like a great pick as it carries a Zacks Rank #1 (Strong Buy).