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Defense Stock Roundup: LDOS Wins Big Deal, HEI Posts Better-Than-Expected Q4 Results

Zacks Equity Research

U.S. defense stocks witnessed a generous flow of funds from the Pentagon over the past five days. This could have kept the nation’s aerospace and defense industry buoyant, but turmoil in the broader market ruined that probability.

Notably, the market was on a rollercoaster ride during the past five trading sessions. While, the U.S.-China trade truce news boosted the equity market, a downside was witnessed after Trump’s impeachment.

Consequently, major indices of the aerospace and defense industry put up a dismal show. Notably, the S&P 500 Aerospace & Defense (Industry) Index slipped 1%, while the Dow Jones U.S. Aerospace & Defense Index went down 1.4% in the past five trading sessions.

Among past week’s highlights, defense majors namely Leidos Holdings Inc. LDOS, Textron Inc. TXT, Boeing BA, Lockheed Martin Corp. LMT and General Dynamics Corp. GD secured a number of notable deals from the Department of Defense’s daily funding session. Meanwhile, Leidos made a meaningful acquisition during this period whereas Heico Corp HEI released its fourth-quarter fiscal 2019 results.

Recap of Past Week’s Important Stories

1.    Leidos Holdings clinched an award worth $6.5 billion from the Defense Information Systems Agency (DISA) for providing network services under the Global Solutions Management - Operations (GSM-O) II contract.

Per the terms, Leidos will operate, defend and sustain the Department of Defense Information Network / Defense Information System Network (DoDIN/DISN). The company will provide network operations and sustainment, network maintenance and repair, and network cybersecurity assurance (read more: Leidos Receives Global Network Management Contract by DISA).

Meanwhile, Leidos Holdings signed an agreement worth $1.65 billion to acquire Dynetics, Inc., an industry-leading applied research and national security solutions company. The company anticipates the acquisition to conclude in the first quarter of 2020 and expects to fund the transaction through a combination of cash in hand and incremental debt (read more: Leidos to Acquire Dynetics for $1.65 Billion in Cash).

2.    Textron’s Bell segment secured a contract worth $815 million to repair and upgrade 35 items used on the UH-1Y and AH-1Z helicopters. The contract was awarded by the Naval Supply Systems Command Weapon Systems Support, Philadelphia, PA.

Per the terms of the contract, Textron will also be responsible for inventory management, warehousing and establishing supply response time metrics. The contract is expected to be completed by December 2024 (read more: Textron Wins $815M Deal to Repair Combat Helicopters).

3.    Boeing secured a $564.5-million contract under the Foreign Military Sales program to remanufacture Apache AH-64E aircraft. The company will remanufacture the combat helicopter for the militaries of the Netherlands, the UAE and the U.K.

The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Work related to the deal is expected to get completed by Mar 1, 2025 (read more: Boeing Wins $565M FMS Deal to Remanufacture AH-64E Aircraft).

4.    Lockheed’s business unit, Sikorsky Aircraft, won a modification contract worth $556.2 million for the production of Black Hawk helicopters. The deal was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL.

The contract is expected to be completed by Jun 30, 2021. Per the terms of the deal, the company will also offer associated services for program system management, engineering, technical data and publications related to Black Hawk helicopters (read more: Lockheed Martin's Unit Wins $556M Deal to Build Black Hawk).

5.    General Dynamics’ Mission Systems business division clinched a contract worth $300 million to procure fire control system and guided missile submarines attack weapon control system for Trident II (D-5) Fleet Ballistic Missile Submarines. Work related to this deal is projected to be over by Dec 30, 2024.

The contract has been awarded by the Strategic Systems Programs, Washington, D.C. Majority of the task will be executed in Pittsfield, MA (read more: General Dynamics Wins $300M Deal to Support Trident Submarine).

6.    HEICO Corp. reported fourth-quarter fiscal 2019 earnings of 62 cents per share, which surpassed the Zacks Consensus Estimate by 8.8%. The bottom line also rose 26.5% from the prior-year quarter’s figure of 49 cents.

Quarterly net sales of $542 million beat the Zacks Consensus Estimate by 2.2%. The top line also increased 14% from the year-ago quarter’s figure.

As of Oct 31, 2019, the company’s cash and cash equivalents totaled $57 million compared with $60 million as of Oct 31, 2018 (read more: HEICO Beats Earnings Estimates in Q4, Hikes Dividend).  

Performance

Over the past five trading sessions, defense biggies mostly put up a dismal show. Boeing lost the most, with its share price declining 2.4%, followed by Northrop Grumman, shares of which slipped 1.1%.

The industry's performance over the last six months has been mostly impressive, except for that of Textron and L3Harris. Leidos Holdings gained the most, with its share price increasing 22.5%.

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 Past Week Last 6 Months
LMT -0.23% 7.71%
BA -2.43% -9.51%
GD -1.01% 2.90%
RTN -0.95% 20.68%
NOC -1.07% 8.57%
LDOS 5.58% 22.45%
TXT 0.59% -12.43%
LHX 0.58% -0.49%

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General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
 
Heico Corporation (HEI) : Free Stock Analysis Report
 
Textron Inc. (TXT) : Free Stock Analysis Report
 
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