Boeing Beats Airbus, Lockheed Freezes Pension Plan

Zacks

Among the important updates over the past five trading days, The Boeing Co. (BA) reported upbeat first half 2014 delivery numbers, thereby retaining its title of the world’s largest airplane manufacturer. Lockheed Martin Corp. (LMT) announced that it will shift active salaried workers to an enhanced defined-contribution program in order to manage rising costs and reduce long-term liabilities (see the last recap here: Defense Stock Roundup for Jul 1, 2014).

Iraq Update

Iraq's new parliament delayed its next session for five weeks, further deepening the country's political turmoil. The al-Qaeda-connected Sunni militant group, the Islamic State in Iraq and Syria (ISIS), also claimed the life of an army general near Baghdad. The insurgents had already declared the establishment of a caliphate, an Islamic state, spanning large areas of Iraq and Syria.

As per media reports, Iraq’s Prime Minister, Nouri al-Maliki might cut defense ties with the U.S. and collaborate with Iran and Russia instead. Mr Maliki is already under pressure from Washington to step down. Signed in 2008, the Strategic Framework Agreement with the U.S. sought to arrive at a long-lasting relationship between the two countries that would encourage peace, stability and democracy in Iraq. In return, the country granted defense contracts worth billions of dollars. The severing of defense ties with the U.S. will thus be a breach of contract.

Recap of the Week’s Most Important Stories

1.    Boeing reported strong delivery numbers for the second quarter as well as the first half of 2014, beating its archrival, Airbus (read more: Boeing Beats Airbus in 1H14 Deliveries).

Boeing also secured a sizable contract from the National Aeronautics and Space Administration (:NASA) to develop the core stage of the largest ever Space Launch System (:SLS) rocket (read more: Boeing Gets NASA Contract for Largest Space Launch System).

2.    Lockheed Martin announced that it will freeze its defined benefit pension plan and move active salaried workers to an enhanced defined-contribution program (read more: Lockheed Martin to Freeze Pension Program). This Bethesda, MD-based prime defense contractor beat Raytheon Co. (RTN) to clinch a $200 million missile contract from the U.S. Department of Defense (DoD).

In a separate development, most of Lockheed Martin’s F-35 fighter jets are undergoing inspections, following the grounding of the entire fleet last week. Moreover, contract negotiations for the next batch of fighter jets and engines have been put on hold. The jet was expected to make its planned international debut at two upcoming airshows in the U.K. starting Friday. No decision has been taken on whether to allow the jets to fly to Britain yet.

3.    A Raytheon and Lockheed Martin joint venture – Javelin – won a $162 million modification to a firm-fixed foreign military sales contract from the U.S. Army Contracting Command, Huntsville, AL. Javelin will purchase 361 Block 1 tactical missiles and 137 commands launch unit retrofits for the U.S. Army; 189 Block 1 tactical missiles and 147 Block 1 tactical missiles for the U.S. Marine Corps; and 20 Block 1 tactical missiles for New Zealand and Jordan.

4.    An L-3 Communications Holdings Inc. (LLL) unit received a $151.4 million T-45 aircraft maintenance contract (read more: L-3 Communications Gets US Navy T-45 Maintenance Contract).

5.    The latest defense contractor to join the acquisition drive is Textron Inc. (TXT). The company’s business arm TRU Simulation + Training Inc. acquired ProFlight, LLC, a leading innovative and advanced pilot training service provider (read more: Textron Unit Acquires ProFlight, LLC).

Performance

In the past one week, a few defense companies appear to have been recovering from their earlier lows. Importantly, Boeing gained 2.27% over the past five trading days followed by Rockwell Collins (COL).

The biggest loser was Lockheed Martin, dropping 1.99% over the time frame, with Textron following suit. In the past six months, the companies have reported in the green (except for Boeing). General Dynamics Corp. (GD) and L-3 Communications Holdings registered double-digit share price growth, with GD leading the way.

All the other big firms have reported single-digit share price appreciation in the last six-month time fame. Boeing has, however, lost 8.33%. The following table shows the price movement of the major defense players over the past five trading days and during the last six months.
 

Company

Last Week

Last 6 months

LMT

-1.99%

+6.60%

BA

+2.27%

-8.33%

GD

-1.03%

+22.20%

RTN

-1.29%

+3.74%

NOC

+0.14%

+4.27%

COL

+1.80%

+4.29%

TXT

-1.87%

+5.39%

LLL

-1.40%

+13.19%


What’s Next in the Defense World?

Raytheon will attend the Farnborough International Airshow to be held between July 14 and July 20 in the U.K.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the Full Research Report on TXT
Read the Full Research Report on BA
Read the Full Research Report on COL
Read the Full Research Report on RTN
Read the Full Research Report on GD
Read the Full Research Report on LLL
Read the Full Research Report on LMT


Zacks Investment Research

View Comments (0)