Defense Stock Roundup: U.S. Lifts Vietnam Arms Embargo; NOC Hikes Dividend; LMT, HII Score Contracts
Though the S&P 500 Aerospace & Defense (Industry) declined 1.29% over the last five trading sessions, there was some positive buzz that would benefit the sector immensely.
The U.S. has fully lifted its arms embargo against Vietnam, 41 years after the close of the Vietnam War. This move from President Obama will help to build a mutually beneficial relationship between the two countries. As per Reuters, Vietnam is the world’s No. 8 arms importer, with sales increasing nearly 700% since 2005.
Although Obama maintained that "the decision to lift the ban was not based on China or any other considerations," we cannot ignore the fact that China’s significant share claim of the South China Sea has somewhere motivated the U.S. on supporting China's rivals who have claims to the sea.
Among the important headlines last week, Lockheed Martin Corp. LMT and Huntington Ingalls Industries, Inc. HII nabbed important contracts. Northrop Grumman Corp. NOC made its 13th consecutive annual dividend hike.
(Read Defense Stock Roundup for May 17, 2016 here.)
Recap of the Week’s Most Important Stories
1. Lockheed Martin Corp.’s Missiles and Fire Control division has won a foreign military sales (“FMS”) contract from the U.S. Army for international allies, Israel, Finland, Jordan and Singapore. The contract is valued at $331.8 million.
Lockheed Martin will deliver Guided Multiple Launch Rocket System (“GMLRS”) alternative warhead rocket pods (290 units), 34 unitary rocket pods, and 529 reduced range practice rocket pods to the above mentioned international partners.
Lockheed Martin’s Sikorsky Aircraft unit won a contract from the U.S. Army for UH-60M Black Hawk helicopters. This is a modification contract, which is valued at $88.1 million, and the contracting activity is Army Contracting Command, Redstone Arsenal, AL.
2. Huntington Ingalls Industries, Inc. has received a $152 million contract from the U.S. Navy for advance planning for the construction of the aircraft carrier Enterprise (CVN 80).
The work under the contract includes engineering, design, planning and procurement of long-lead-time material. It will be carried out at the company’s Newport News Shipbuilding division and is slated for completion by Mar 2018.
Construction on Enterprise will begin in 2018 with delivery to the Navy slated for 2027. Enterprise will replace the USS Dwight D. Eisenhower (CVN 69) when the aircraft carrier enters the fleet.
3. Falls Church, VA-based Northrop Grumman Corp. announced that its board of directors has approved an increase in the quarterly dividend rate by 12.5%, bringing the annualized payout to $3.60 per share from $3.20 paid earlier.
The raised quarterly dividend will amount to 90 cents per share from the prior payment of 80 cents. The hiked dividend will be paid on Jun 22, to shareholders of record at the close of business on Jun 6, 2016.
Increasing the dividend has become an annual ritual for this defense major. This will be the company’s 13th consecutive annual dividend hike.
4. Shares of L-3 Communications Holdings Inc. LLL scaled a new 52-week high of $138.00 on May 19, eventually closing a little lower at $136.85.
L-3 Communications’ rating was upgraded to “outperform” from “sector perform” by Robert Stallard, an equities research analyst at RBC Capital, as per a report released on Thursday. The target price was raised to $150 from the previous target of $137. The brokerage firm’s target price shows a potential increase of 9.61% from the current price of the stock.
After a discussion with the company’s management, Stallard has come to believe that L-3 Communications is poised to achieve its long-term operating margin target. Moreover, he stated that the company’s latest initiatives related to the portfolio and balance sheet will allow it to deploy cash for mergers and acquisitions as well as for boosting investor value.
L-3 Communications’ CFO, Ralph D’Ambrosio, stated that in 2017, Electronic Systems may touch the low end of the range of 13–14% of operating margin, while Aerospace Systems is expected to keep up its robust performance.
Performance
Almost all the major defense stocks depreciated last week barring L-3 Communications Holdings. Boeing BA lost the most followed by Rockwell Collins Inc. COL.
In the past six months, however, the picture is somewhat mixed. Northrop Grumman gained the most while Textron TXT and Boeing were the biggest losers.
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 | -0.83% | 7.36% |
BA | -3.76% | -12.68% |
GD | -1.90% | -1.17% |
RTN | -0.76% | 3.14% |
NOC | -0.67% | 15.05% |
COL | -2.67% | -5.45% |
TXT | -1.59% | -12.68% |
LLL | 1.07% | 11.93% |
What’s Next in the Defense World?
Raytheon Co. RTN is hosting its 2016 Annual Shareholder Meeting on May 26, 2016.
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NORTHROP GRUMMN (NOC): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
ROCKWELL COLLIN (COL): Free Stock Analysis Report
TEXTRON INC (TXT): Free Stock Analysis Report
RAYTHEON CO (RTN): Free Stock Analysis Report
L-3 COMM HLDGS (LLL): Free Stock Analysis Report
HUNTINGTON INGL (HII): Free Stock Analysis Report
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