Defense Stock Roundup: Lockheed Wins Over Raytheon, Boeing Looks Good - Analyst Blog

The past five trading days have turned out to be quite eventful for the defense sector with most of the defense stocks closing in the green. Although budget issues will continue to plague these stocks for some time to come, the players are steadily diversifying into the lucrative commercial aviation business for some quick gains. Defense biggies nonetheless won small as well as big contracts from the Department of Defense (DoD) keeping their order books ticking.

Among the important updates in the past week, Lockheed Martin Corp. LMT grabbed most of the limelight. Space Systems continues to capture the government's attention as the Pentagon intends to develop a more resilient space division to face emerging security threats. In response to this, contractors like Lockheed and Raytheon Company RTN continue to expand their satellite product coverage through technological innovation as well as acquisitions (see last to last week's recap here: Defense Stock Roundup for May 28, 2014).

Recap of the Week's Most Important Stories

1.    Prime defense contractor Lockheed Martin outmatched its rival bidder Raytheon to clinch a big ticket contract for building a radar system to track space junk (read more: Lockheed Wins Space Radar Contract).

2.    In an attempt to boost its product coverage and enhance market penetration, Lockheed Martin entered into a deal with Astrotech Corp. to acquire the Astrotech Space Operations business for an undisclosed amount (read more: Lockheed to Acquire Astrotech Unit).

3.    Raytheon also was not left empty-handed. It won a $298 million modification contract to provide satellite communications terminals. This contract for the Family of Advanced Beyond Line of Sight Terminals (FAB-T) Command Post Terminals CPT Production program is designed to facilitate top regulators with secure communications for directing military forces. (read more: Raytheon Gets $298M Air Force Contract)

4.    A Textron Inc. TXT defense systems subsidiary secured a $190 million contract to provide 361 sensor fuzed weapons, 7 trainers and 18 wind corrected munitions dispenser tail kits to the Republic of Korea (read more: Textron Wins South Korean Deal).

5.    Britain's BAE Systems plc (BAESY) won a contract modification, worth $447 million, that lifted the ceiling value on a contract. The contract calls for BAE Systems to supply the U.S. Army with AN/AAR-57V Common Missile Warning Systems and related spare parts. The company is also entitled to provide the Army with systems engineering, technical, and logistics support services for both CMWS and for AN/ALQ-212 Advanced Threat Infrared Countermeasures (ATIRCM) systems through Sep 29, 2016.

Performance

Shares of all defense biggies were in the green in the past one week. The biggest gainer L-3 Communications Holdings Inc. LLL rose 3.40% over the time frame. In the past 6 months, General Dynamics has led the way, with Textron coming in a close second.

Boeing BA also did a good job last week, bringing the six-month return to positive after remaining in the red for the prior two weeks. The defense behemoth seeks to strengthen its Boeing Edge capabilities with two back-to-back acquisitions of Dutch and British technology firms. Boeing Edge is the commercial aerospace industry's largest portfolio of integrated services. The following table shows the price movement of the major defense players over the past 5 trading days and during the last 6 months:
 

Other Stories You May Have Missed

Apart from the top five developments in the defense sector discussed above, these majors have also picked up small ticket programs from the DoD funding list. If you consider sheer numbers, Northrop Grumman Corp. NOC won quite a few, worth more than $100.0 million in aggregate.

Again, another aerospace and defense company, Triumph Group, Inc. TGI, has plans to take over the hydraulic actuation business of GE Aviation, further strengthening its Aerospace unit in the wake of ongoing budget issues (read more: Triumph to Acquire GE Actuation Business).

Huntington Ingalls Industries, Inc. completed the acquisition of UniversalPegasus International, a provider of engineering and project management services, thereby diversifying into the energy market.

What's Next in the Defense World?

Rockwell Collins Inc. COL will attend the Deutsche Bank 2014 Global Industrials and Basic Materials Conference on Jun 5, 2014.

We remind investors that the Zacks Industry Rank for aerospace/defense is within the top one-third of the list of 260-plus industries, suggesting bright prospects for this industry going forward. However, we expect the ongoing flat-to-bearish trend to persist in defense stocks in the coming days. (To know more, read: Zacks Industry Rank)

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