Short Interest Moves In Defense Stocks Ahead Of The Government Shutdown (HII, RTN, UTX)
Between the September 13 and September 30 settlement dates, the number of shares sold short in Raytheon (NYSE: RTN), United Technologies (NYSE: UTX) and Huntington Ingalls Industries (NYSE: HII) grew by the largest percentages among U.S. defense stocks.
In the days leading up to the federal government shutdown, short interest in Alliant Techsystems (NYSE: ATK), L-3 Communications (NYSE: LLL), Rockwell Collins (NYSE: COL) and Textron (NYSE: TXT) also rose by double-digit percentages.
Boeing (NYSE: BA) and TransDigm (NYSE: TDG) saw the number of their shares sold short increase somewhat. Short interest in FLIR Systems (NASDAQ: FLIR) and General Dynamics (NYSE: GD) was essentially unchanged from the previous period.
Here we take a quick look at how Huntington Ingalls, Raytheon and United Technologies have fared and what analysts expect from them.
Huntington Ingalls Industries
Short interest in this shipbuilder for the U.S. Navy and Coast Guard jumped about 58 percent in the final weeks of September to around 864,000 shares. That was the highest number of shares sold short since April, and it represents less than two percent of the total float. Days to cover rose to almost three.
In September, the Navy delayed for a year the construction on the USS John F. Kennedy aircraft carrier to be built by Huntington Ingalls. 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.
The consensus recommendation of 14 surveyed analysts surveyed by Thomson/First Call is to hold the shares, and it has been for at least three months. The current share price has outrun the mean price target, meaning that on average the analysts see no upside potential at this time.
Shares have traded mostly between $66.50 and $69.50 for the past month, but the share price is still more than 20 percent higher year-to-date. The stock has outperformed both General Dynamics and the Down Jones Industrial Average (DJIA) over the past six months.
Short interest in this Waltham, Massachusetts-based company grew more than 16 percent in the period to 7.99 million shares. That was the highest number of shares sold short so far this year, and it represents more than two percent of the total float. The days to cover rose to more than five.
The world's largest producer of guided missiles continued to win contracts from the Pentagon during the period. The company has a market cap of more than $24 billion and a dividend yield near 3.0 percent. The long-term EPS growth forecast is about seven percent, and the return on equity is almost 23 percent.
The consensus recommendation of analysts who follow the stock is to hold Raytheon shares, and it has been for at least three months. Their mean price target, or where the analysts expect the share price to go, is only marginally higher that the current share price.
The share price has pulled back more than five percent from a recent multiyear high, but it is still up about 30 percent year-to-date. The stock has narrowly underperformed Boeing over the past six months, but it has outperformed and the DJIA in that time.
The number of shares sold short in this Hartford, Connecticut-based company increased more than 21 percent in the latter weeks of the month to around 7.53 million, though that is less than one percent of the float. It would take more than two days to close out all of the short positions.
This company makes everything from elevators to fire extinguishers to aircraft engines. It has a market cap of less than $97 billion and a dividend yield of about 2.1 percent. The price-to-earnings (P/E) ratio is less than the industry average, while the operating margin is greater than the industry average.
All but four of the 23 analysts polled recommend buying shares, with six of them rating the stock at Strong Buy. The analysts' mean price target indicates more than nine percent upside potential. Their consensus target also would be a new multiyear high.
Shares have pulled back more than five percent from a recent 52-week high. The share price is more than 10 percent higher than six months ago, in which time the stock has outperformed the likes of General Electric (NYSE: GE) and the DJIA.
At the time of this writing, the author had no position in the mentioned equities.
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