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Defense Stock Roundup: GD, BA, LMT Win Big Deals, AIR Beats on Q3 Earnings

Zacks Equity Research

In the trailing five trading sessions, a smooth flow of contracts from the Pentagon drove defense stocks. As a result, major indices of the aerospace and defense industry ended in the green. The S&P 500 Aerospace & Defense (Industry) index inched up 0.2% while the Dow Jones U.S. Aerospace & Defense index rose 0.5% in the last five trading sessions.

Among last week’s highlights, defense majors namely General Dynamics Corp. GD, The Boeing Company BA and Lockheed Martin Corp. LMT secured big deals from the Department of Defense’s daily funding session. Meanwhile, AAR Corp. AIR released its quarterly result.

Recap of the Past Week’s Important Stories

1.    General Dynamics’ Electric Boat division won a $2-billion modification contract in relation to the Virginia-class submarines. The deal has been awarded by The Naval Sea Systems Command, Washington, DC.

The contract involves long lead time materials and economic ordering quantity in connection to fiscal 2019-2023 Virginia-class submarines. Work related to the deal will beexecuted in Sunnyvale, CA (read more: General Dynamics Wins $2B Submarine Modification Deal).

2.    Lockheed Martin clinched a $506.9-million modification contract to produce Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-3 (PAC-3) missile. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL.

Per the deal, Lockheed Martin will provide incidental services, hardware testing and other technical services for the production of PATRIOT missiles. Work related to the deal will be performed in Grand Prairie, TX and is scheduled to becompleted by Dec 31, 2024 (read more: Lockheed Martin Clinches $507M PAC-3 Missile Production Deal).

Moreover, Lockheed’s Aeronautics business unit recently secured a modification contract to support the F-35 Lightning II Joint Strike program. The deal has been awarded by the Naval Air Systems Command, Patuxent River, MD.

Valued at $264.7 million, the contract will cater to the Korean government. Under the terms of the agreement, the company will offer additional operation and technical services to aid Korea’s F-35 Lightning II program. Work related to the deal is scheduled to be over by June 2020 and will be carried out in Fort Worth, TX (read more: Lockheed Wins $265M Deal to Aid Korea's F-35 Jet Program).

3.    Boeing won a $327 million contract to upgrade the P-8A Aircraft. The contract was awarded by the Naval Air Systems Command, Patuxent River.

Per the terms of the deal, the aerospace giant will develop, integrate and test Increment 3 Block capabilities into the P-8A aircraft for the Navy and the government of Australia. The entire task related to the deal is expected to be completed by March 2024. (Read more: Boeing Secures $327M Navy Deal to Upgrade P-8A Aircraft).

4.    AAR Corp. reported third-quarter fiscal 2019 adjusted earnings of 79 cents per share, which surpassed the Zacks Consensus Estimate of 69 cents by 14.5%. The figure reflected a year-over-year improvement of 61% from 49 cents in the year-ago quarter.

The company’s net sales of $529.5 million missed the Zacks Consensus Estimate of $544 million by 2.7%. During the quarter, the company paid cash dividends of $2.6 million, or $0.075 per share.

As of Feb 28, 2019, AAR Corp’s cash and cash equivalents amounted to $28.9 million compared with $31.1 million as of May 31, 2018 (read more: AAR Corp Earnings Beat Estimates in Q3, Sales Miss).

Performance

Over the last five trading sessions, the defense biggies put up a dismal show. Textron TXT lost the most with 6% decline in its share price, followed by Northrop Grumman.

However, the industry's performance over the past six months has been solid, except Lockheed Martin. Textron has been the biggest gainer, up 10.2%, followed by L3 Technologies.

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 -1.34% -6.80%
BA -2.44% 3.93%
GD -0.38% 5.50%
RTN -1.58% 6.61%
NOC -2.61% 6.41%
TXT -5.58% 10.22%
LLL -0.53% 9.78%


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