Zacks Industry Outlook Highlights: Lockheed Martin and Huntington Ingalls Industries

Zacks

For Immediate Release

Chicago, IL – August 15, 2013 – Today, Zacks Equity Research discusses the U.S. Aerospace & Defense, including Lockheed Martin Corp. (LMT-Free Report) and Huntington Ingalls Industries Inc. (HII-Free Report).

Industry: Aerospace & Defense

Link:http://www.zacks.com/commentary/28568/Aerospace-and-Defense-Industry-Outlook---August-2013

The aerospace and defense industry found its largest base in the U.S. with a military budget fittingly impressive. The country's global leadership position requires it to maintain the capacity to respond to the ever-changing national security environment.

In Apr 2013, the Obama administration proposed a defense budget of $526.6 billion for FY14, down $0.9 billion from the FY13 annualized continuing resolution level of $527.5 billion. However, the FY14 request does not yet include a detailed budget for Overseas Contingency Operations ("OCO"), which is essentially government-speak for foreign wars and war on terror operations. The government is yet to release the OCO budget.

The budget calls for the termination of a few programs which include C-17 Airlifter, F-22 stealth fighter, Future Combat Systems, Multiple Kill Vehicle, Kinetic Energy Interceptor, Airborne Laser, Combat search and rescue helicopter and Presidential helicopter.

Budget Issues - the Sequester

The budget sequester that went into effect at the start of Mar 2013 and that has a direct bearing on the U.S. government's defense spending is a function of the country's fiscal and economic challenges.

Per a media report released in June this year, the government has provided details of $37 billion of sequestration cuts to occur by Sep 30, 2013. These cuts will not spare any of the defense majors from Lockheed Martin Corp. (LMT-Free Report) to Huntington Ingalls Industries Inc. (HII-Free Report).

The Pentagon faces another $52 billion in reductions from planned spending for the next fiscal year, if Congress and President Barack Obama don’t reach a consensus on reducing the U.S. budget deficit.

Offsetting the Sequestration Effect

Sequestration will cut some $1 trillion from the defense budget over the next decade, according to The Washington Free Beacon. Yet, the aerospace and defense industry is holding up well this year thanks to technological innovations, big contracts, acquisitions and growing commercial demand.

Since the domestic aerospace and defense sector is facing budget cuts and a constrained spending environment, the industry is looking for growth from international orders. Additionally, a number of new emerging markets as well as developed nations, such as India, Japan, the United Arab Emirates, Saudi Arabia and Brazil, are boosting defense spending and generating business for the U.S. aerospace and defense companies.

Moreover, these defense behemoths have diversified their businesses to counter the effect of the sequester. Also, the complex military programs being awarded to these companies much before the across-the-board spending cuts came into force have somewhat diluted the sequester impact.

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