Defense Majors Share DoD Contracts

Zacks

Textron Inc. (TXT), Lockheed Martin Corp. (LMT), and Raytheon Co. (RTN) have again become a part of the Department of Defense’s (DoD) contracts. The companies have been fortunate to win the DoD contract worth $880 million.

The DoD has given fourteen individual contracts to a number of companies. Per the contract, these firms including Textron, Lockheed Martin and Raytheon will provide helicopters, and software as well as radar services.

Textron’s unit Bell Helicopter has received a contract, worth $38.8 million, to provide two new Lot 10 AH-1Z "Viper" attack helicopters to the Marines. The contract is expected to be completed by Sep 2013.

Lockheed Martin has received an indefinite-delivery/indefinite-quantity contract, worth $27.9 million to preserve software aboard Air Force C-5 Galaxy transport aircraft, offer engineering support on the same and outline an emergency operational flight arrangement. The contract is scheduled to be completed by Jun 2016.

Integrated Defense Systems division, a unit of Raytheon, has received a modification contract, worth $10.4 million, to supply radar digital processor upgrade kits for the PATRIOT anti-aircraft missile system.

In May 2013, Textron received a cost-plus-fixed-fee, foreign military sales contract, worth maximum $85.4 million, from the DoD to provide engineering and technical support services.

Despite the continuous flow of contracts, the threat of sequestration, fear from budget uncertainty, the fate of high-cost programs, risks associated with key project executions and order cancellations cannot be denied.

We believe the defense companies’ effort toward wining more international orders will enable them to maintain a regular revenue flow. Some companies are also repositioning themselves in order to streamline their operations and reduce operating expenses. These initiatives will help the defense companies to tackle the ongoing headwinds.

Raytheon currently has a Zacks Rank #2 (Buy) while Textron and Lockheed Martin carry a Zacks Rank #3 (Hold). Other stocks from the sector that are presently performing well include Astronics Corporation (ATRO) with a Zacks Rank #1 (Strong Buy).

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