Market Overview

Before Syria Blowup, Short Interest In Defense Stocks Shrank (GD, HII, UTX)

Between the August 15 and August 30 settlement dates, after the effects of the federal budget sequester were well established but as the latest tensions over the Syrian situation were just starting to boil up, the largest short interest moves in defense stocks were declines.

The number of shares sold short in General Dynamics (NYSE: GD), Huntington Ingalls Industries (NYSE: HII), and United Technologies (NYSE: UTX) dwindled by the largest percentages during the period. Below we take a quick look at how they have fared and what analysts expect from them.

The declines were more modest in FLIR Systems (NASDAQ: FLIR), HEICO (NYSE: HEI), Northrop Grumman (NYSE: NOC), Raytheon (NYSE: RTN), Rockwell Collins (NYSE: COL) and Textron (NYSE: TXT).

However, short sellers did make modest moves on Alliant Techsystems (NYSE: ATK), Boeing (NYSE: BA), Esterline Technologies (NYSE: ESL), Hexel (NYSE: HXL), L-3 Communications (NYSE: LLL) and TransDigm (NYSE: TDG).

See also: Short Sellers Load Up On Applied Materials And Other Chip Stocks

Huntington Ingalls Industries

Short interest in this shipbuilder for the U.S. Navy and Coast Guard fell more than 20 percent in the period to less than 610,000 shares. That was on top of a decline of nearly nine percent in the previous period. The number of shares short was a bit more than one percent of the float at the end of the month.

In late August, the ninth San Antonio-class ship built by Huntington Ingalls successfully completed its sea trials. The company has a market capitalization of more than $3 billion and a dividend yield of about 0.6 percent. The long-term earnings per share (EPS) growth forecast is about 21 percent, and the return on equity is near 20 percent.

The consensus recommendation of 14 surveyed analysts by Thomson/First Call is to hold the shares, and it has been for at least three months. The mean price target, or where the analysts expect the share price to go, is more than three percent higher than the current share price. That would be a new 52-week high, though.

The share price has pulled back from a recent 52-week high, but it is still up more than 20 percent year-to-date. The stock has outperformed General Dynamics and the Down Jones Industrial Average over the past six months.

General Dynamics

This Falls Church, Virginia-based aerospace and defense company saw short interest shrink about 16 percent in late August to about 3.30 million shares. The number of shares sold short has been on the decline since mid-June. Short interest was about one percent of the float, and days to cover was less than three.

General Dynamics won a Pentagon vehicle deal worth up to $562 million during the period. The company has a market cap of more than $30 billion and a dividend yield near 2.6 percent. Note that the long-term EPS growth forecast is near six percent and the return on equity is in negative territory.

Out of 20 analysts polled, 14 recommend buying shares, five of them rating shares at Strong Buy. The analysts see some headroom for the stock, as their mean price target is more than nine percent higher than the current share price. That consensus target would be a new multiyear high.

The share price is fractionally higher than a month ago but up more than 26 percent since the beginning of the year. The stock has underperformed competitor Boeing over the past six months, but it has outperformed Textron and the broader markets.

United Technologies

The number of shares sold short in this Hartford, Connecticut-based company declined more than 13 percent in the period to more than 6.16 million, or less than one percent of the float. That followed a decrease of more than 16 percent in the previous period. The days to cover pulled back slightly but was still more than two.

This maker of everything from elevators to aircraft engines won a Pentagon contract to build F-35s in August. The company has a market cap of about $99 billion and a dividend yield of about 2.1 percent. The long-term EPS growth forecast is more than 13 percent. The return on equity is more than 24 percent.

Six of the 23 analysts polled rate the stock at Strong Buy, and another 13 also recommend buying shares. Their mean price target indicates more than seven percent upside potential and would be a new multiyear high.

Shares reached the current multiyear high on Thursday, after rising more than 28 percent since the beginning of the year. The stock has underperformed Northrop Grumman but outperformed General Electric (NYSE: GE) and the Down Jones Industrial Average over the past six months.

See also: Short Sellers Return To Delta, Flee U.S. Airways

At the time of this writing, the author had no position in the mentioned equities.

Posted-In: alliant techsystems Boeing esterline technologies FLIR Systems general dynamics General ElectricShort Ideas Trading Ideas Best of Benzinga

 

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