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Defense Stock Roundup: KTOS Beats on Q1 Earnings, BA, LMT Win Big

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A handful of defense majors clinched notable contracts from the Pentagon in the past week, while a few released their Q1 results. Following this, the major indices of the Aerospace-Defense space ended in the green over the trailing five trading sessions. Evidently, the S&P 500 Aerospace & Defense (Industry) index rose 6.4%, while the Dow Jones U.S. Aerospace & Defense index increased 8.9% in the aforementioned time period.

In the past week, Kratos Defense & Security Solutions KTOS released results, while Boeing BA, Raytheon Technologies RTX and Lockheed Martin LMT secured a handful of contracts.

Recap of Past Week’s Important Stories

1.    Kratos Defense reported first-quarter 2020 adjusted earnings of 9 cents per share, which exceeded the Zacks Consensus Estimate by 50% but declined 18.2% year over year. Its revenues of $168.9 million surpassed the Zacks Consensus Estimate by 2.4% and increased 5.3% year over year.

The company reported first-quarter 2020 bookings of $213.1 million and a book-to-bill ratio of 1.3 to 1.0.

As of Mar 29, 2020, cash generated from operating activities was $4 million compared with $16 million in the prior-year quarter. For 2020, the company lowered its revenue guidance (read more: Kratos' Q1 Earnings Beat Estimates, Revenues Rise Y/Y).

2.    Boeing clinched two contracts worth a combined $2.6 billion for manufacturing air-to-surface and anti-ship missiles for Saudi Arabia and other nations across the globe.

The first contract involves the production and delivery of 650 Standoff Land Attack Missile Expanded Response (SLAM ER) missiles to Saudi Arabia, whereas the second contract is related to the delivery of 467 Harpoon Block II missiles.

The first contract is expected to be completed by December 2028 (read more: Boeing Wins $2.6 Billion Deal for SLAM ER & Harpoon Missiles).

3.    Javelin, a joint venture of Raytheon Technologies and Lockheed Martin, won a contract worth $121.8 for procuring Javelin weapon system. Work related to the deal is scheduled to be over by Aug 31, 2023.

With increasing demand for missile defense systems owing to a rise in worldwide geopolitical tensions, both these companies are witnessing notable contract flow from the Pentagon. The latest contract win is an instance of that, with Javelin being the preferred choice of the U.S. Army, Marine Corps and almost 15 allied militaries (read more: Raytheon-Lockheed JV Wins $122M Deal for Javelin Missiles).

4.    Lockheed secured a $904.8 million modification contract for the production and delivery of three MH-60R aircraft to the U.S. Navy and 21 of these maritime aircraft to the government of India. The deal has been awarded by the Naval Air Systems Command, Patuxent River, MD.

The contract is scheduled to be completed by September 2024 (read more: Lockheed Martin Wins $905M Deal to Build MH-60R Aircraft).

Performance

Over the past five trading sessions, the defense biggies put up a solid show. Boeing gained the most, with its share price rising 8.2%, followed by Northrop Grumman.

In the last six months, the industry's performance was disappointing. Boeing lost the most with 67.5% slump in share price, followed by L3Harris Technologies.

The following table shows the price movement of the major defense players over the last five trading days and during the last six months.

Company Past Week Last 6 Months
LMT 6.57% -3.88%
BA 8.21% -67.52%
GD 5.70% -7.24%
RTX 2.04% 0.99%
NOC 7.29% -8.69%
TXT 10.02% -0.12%
LHX 3.78% -10.02%

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