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Defense Stock Roundup: GD Hikes Dividend, AVAV, AOBC Beat on Q4 Earnings

Zacks Equity Research

In the trailing five trading sessions, mixed performance at the bourses limited defense stocks’ growth. As a result, major indices of the aerospace and defense industry ended in the red. Notably, both the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense indices declined 1.9% in the past five trading sessions.

Among the last week’s highlights, defense majors namely General Dynamics Corp. GD and Lockheed Martin Corp. LMT  secured notable deals from the Department of Defense’s daily funding session. Moreover, General Dynamics announced dividend hike. Meanwhile, AeroVironment Inc. AVAV and American Outdoor Brands Corp. AOBC released their quarterly results.

Recap of the Past Week’s Important Stories

1. General Dynamics’ business unit, Land Systems, clinched a $1.4 billion contract in relation to the Stryker Family of Vehicles. The contract was awarded by the U.S. Army Contracting Command, Warren, MI.

Per the terms of the deal, the company will provide retrofit, damage repair and reset-refurbishment services to the Stryker Family of Vehicles. Work related to the deal is expected to be completed by Feb 28, 2024 (read more: General Dynamics Wins $1.4B Deal to Support Stryker Vehicles). 

Moreover, the company’s board of directors approved a 9.7% hike in its quarterly common stock dividend. The raised dividend of $1.02 per share compares favorably with the prior payment of 93 cents.

The latest hike marks the 22nd consecutive annual dividend hike approved by General Dynamics’ board. Last year, the company paid dividends worth $1.1 billion and is expected to reward its shareholders with similar hikes in the days ahead (read more: General Dynamics Rewards Investors With 9.7% Dividend Hike).

2. Lockheed Martin’s Missiles and Fire Control (MFC) business unit won a foreign military sales (FMS) contract worth $945.9-million in relation to Terminal High Altitude Area Defense (THAAD) missile system. Work related to the deal will be executed in Dallas, TX; Huntsville, AL; Sunnyvale, CA and other locations within the United States.

Per the terms of the contract, Lockheed will offer the Kingdom of Saudi Arabia (KSA) with technical support services related to THAAD missile system. The contract, provided by Missile Defense Agency, Huntsville, is scheduled to be completed by Oct 31, 2026 (read more: Lockheed Martin Wins $946M Support Deal for Saudi's THAAD).

3. AeroVironment’s third-quarter fiscal 2019 earnings per share (EPS) from continuing operations of 35 cents exceeded the Zacks Consensus Estimate of 14 cents by 150%. Its revenues of $75.3 million increased 38% on a year-over-year basis.

As of Jan 27, 2019, the company’s funded backlog was $132.5 million, up 17% year over year. Total operating expenses increased 24.7% to $22.55 million, thanks to 27.6% rise in selling, general and administrative expenses and 22.4% in research and development expenses.

The company’s operating cash flow totaled $6.9 million as of Jan 27, 2019, significantly down from $31.8 million as of Jan 27, 2018. For fiscal 2019, the company expects to generate revenues from continuing operations of $300-$310 million (read more: AeroVironment Beats on Q3 Earnings, Lifts '19 EPS View).

4. American Outdoor Brands’ third-quarter fiscal 2019 (ended Jan 31, 2019) adjusted earnings of 16 cents per share surpassed the Zacks Consensus Estimate of 12 cents by 33.3%. Its total sales amounted to $162 million, which missed the Zacks Consensus Estimate of $162.6 million.

American Outdoor Brands’ cash and cash equivalents were $37.5 million compared with $48.9 million as of Apr 30, 2018. Its cash inflow from operating activities in the first nine months of fiscal 2019 was $20.7 million against cash outflow of $4.5 million a year ago.

For fourth-quarter fiscal 2019, American Outdoor Brands expects adjusted earnings of 11-15 cents per share (read more: American Outdoor Brands' Q3 Earnings Beat, 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 last 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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