Market Overview

Defense Stock Roundup: Trump Signs Defense Bill, Lockheed And Huntington Win Deals


At the beginning of this week, the U.S. defense policy bill received a green signal from the nation's commander-in-chief, which provided a boost to  defense stocks. Notably, on Aug 13, President Trump signed the colossal fiscal 2019 National Defense Authorization Act (NDAA), sanctioning an allowance of $717 billion for spending on security of the United States.

NDAA authorizes a 2.6 percent pay raise for military along with an addition of 15,600 service members to the active duty. Meanwhile, the Pentagon aims to expand the size and strength of U.S. military by adding thousands of new recruits to active duty, the Reserve and the National Guard units.

However, America's consistent tiff with China leading to possibilities of trade war made equity investors skeptic lately. In fact, this might have partially hurt the defense stocks, which received a stimulus owing to sanction of the defense policy bill. Notably, major indices of the Aerospace-Defense space — both the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense index — inched up 0.5 percent each in the trailing five trading session.

Nevertheless, keeping up with its usual trend, the major U.S. defense contractors kept receiving a generous flow of funds from the Pentagon in the preceding five trading sessions. Among last week's highlights, defense majors — Lockheed Martin Corporation (NYSE: LMT), General Dynamics Corporation (NYSE: GD) and Huntington Ingalls Industries Inc (NYSE: HII) — secured a few orders from the Department of Defense's daily funding session. Meanwhile, Triumph Group Inc (NYSE: TGI) released its quarterly results.

Recap Of The Past Week's Top Stories

1. Lockheed Martin's Space Systems division clinched a $2.94 billion contract for developing three next-generation Overhead Persistent Infrared (OPIR) Geosynchronous Earth Orbit Space vehicles. Work related to the deal will be performed in Sunnyvale, CA and is expected to be completed by Apr 30, 2021.

The contract was awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

Per the terms of the deal, the company will provide requirements analysis and procure critical path flight hardware along with conducting risk reduction efforts, which would lead to a system critical design review of the missile warning satellites.

The company's Missiles and Fire Control unit also secured a $480-million contract for providing critical designing, review, test and production readiness support for the Air Launched Rapid Response Weapon (ARRW).

Work related to the deal will be performed in Orlando, FL and is expected to get completed by Nov 30, 2021. The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, FL.

Lockheed Martin's Aeronautics business division too won a $302 million contract for delivering ancillary mission equipment to support low rate initial production (LRIP) of the 12th lot of F-35 Lightning II jets. This deal will cater the U.S. Air Force, Marine Corps, Navy, non-Department of Defense (DoD) participants and foreign military sales customers.

Work related to the deal will be performed in Fort Worth, TX and is expected to get completed by January 2021 (read more: Lockheed Martin Wins $302M Deal for F-35 Lightning Program).

2. Huntington Ingalls clinched a contract worth $186.7 million for performing complex overhaul (RCOH) work on USS John C. Stennis (CVN 74). The task will be carried out under fiscal 2018 advance planning. It was awarded by the Naval Sea Systems Command, Washington, D.C.

The efforts include developing cost estimates for completing the work, data acquisition, pre-overhaul tests and inspections, and other technical studies as required to prepare and make ready for the CVN 74 RCOH accomplishment.

Work related to the contract is expected to be over by July 2019.

3. General Dynamics' subsidiary, National Steel and Shipbuilding Co. (NASSCO), won a $147.7 million contract for performing maintenance, modernization and repairs works on USS Cowpens (CG 63). Work related to the deal will be executed in San Diego, CA.

The deal includes options, which if exercised, will bring the cumulative value of this contract to $154.8 million.

NASSCO will offer the facilities and human resources capable of completing, coordinating and integrating multiple areas of ship maintenance, repair and modernization for USS Cowpens.

4. Triumph Group's adjusted earnings from continuing operations in first-quarter fiscal 2019 (ended Jun 30, 2018) came in at 34 cents per share, which missed the Zacks Consensus Estimate of 36 cents by 5.6 percent. Net revenues totaled $832.9 million, which exceeded the Zacks Consensus Estimate of $802 million by 3.8 percent.

Organic sales in the quarter improved 3 percent year over year. As of Jun 30, 2018, Triumph's cash and cash equivalents were $33.1 million compared with $35.8 million as of Mar 31, 2018.

Cash outflow from operations at the end of first-quarter fiscal 2019 summed $65.7 million compared with $288.9 million at fiscal 2018-end.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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