Defense Stock Roundup: U.S. Air Strike On Syria Hurts Market

The U.S. defense sector has been dominating the headlines following the launch of cruise missiles on a Syrian air base. President Trump justified the strike as a response to the Syrian government’s barbaric chemical attack that claimed at least 72 lives. Although the act has been justified as one done in national interest, the suddenness of it compelled investors to turn to safe-haven assets, causing considerable distress to global stocks.

Meanwhile, fresh tensions between the U.S. and North Korea as well as a generous flow of funds from the Pentagon boosted the outlook for defense stocks. However, the latest drop in the global stock market might have partially marred the prospects. As a result, major indices of the Aerospace-Defense industry posted a mixed performance in the trailing five sessions. While the S&P 500 Aerospace & Defense (industry) Index inched up 0.4%, the Dow Jones U.S. Aerospace & Defense Index dropped 0.7%.

Among last week’s highlights, defense primes Lockheed Martin Corp. LMT, The Boeing Company BA, Raytheon Company RTN and BAE Systems Plc BAESY secured big contracts from the Department of Defense (DoD).

(Read Defense Stock Roundup for Mar 31, 2017 here)

Recap of Last Week’s Key Stories

1. Pentagon’s prime contractor Lockheed Martin’s Aeronautics business unit clinched a modification contract worth $581.8 million for providing air vehicle initial spares to support the air vehicle delivery schedule for the U.S. Air Force, Navy, Marine Corps, non-Department of Defense (DoD) participants, and foreign military sales customers. Work related to this deal is expected to be over by Apr 2021.

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the agreement, Lockheed Martin will provide F-35 common spares, F-35A, F-35B and F-35C unique spares, and aloft spares packages/deployment spares packages and reprogramming lab spares. Majority of the work will be performed in Fort Worth, TX (read more: Lockheed Martin Wins $582M Deal to Supply Air Vehicle Spares).

The company’s Aeronautics division won another modification contract worth $129.4 million for providing additional work on the TR-3 integrated core processor and related subsystems. This deal aims at dealing with diminishing manufacturing sources constraints projected under production of the 15th Lot of F-35 jets. Work for this deal will be carried out in Fort Worth, TX, and is expected to be completed in Mar 2019.

Further, the company recently signed a deal worth $288 million to acquire Instrumentable Multiple Integrated Laser Engagement System (I-MILES) Combat Vehicle Tactical Engagement Simulation System (CV TESS). Work under this deal is expected to be over by Mar 30, 2024.

This contract will complete the basis of issue and potentially replace older legacy systems. It has been awarded by the Army Program Executive Office Simulation, Training and Instrumentation, Orlando, FL (read more: Lockheed Martin to Gain I-MILES Simulation System for $288M).

2. Aircraft major Boeing recently won a modification contract worth $168.8 million from the U.S. Air Force (USAF) to upgrade F-15 Combined APG-63 Version 3 (V3) Radar Improvement Program and APG-82 Version 1 Radar Modernization Program (RMP) radar. Work is scheduled to be completed by Feb 28, 2022.

The deal was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH. Per the contract, Boeing will provide additional quantity of 18 V3 radars and 16 RMP radars. Apart from this, the company will offer associated installation, initial spares, support equipment, ICS, tooling and other necessary support (read more: Boeing Wins $169M Air Force Contract to Upgrade Radars).

3. United Launch Services, LLC (“ULS”) – a subsidiary of United Launch Alliance (“ULA”) –recently won two modification contracts worth $416.9 million from the U.S. Air Force for the launch of vehicle production services (LVPS). Notably, ULA is a joint venture (JV) formed by Lockheed Martin and Boeing. Both the contracts were awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

Per the first contract worth $270.4 million, ULS will provide the required LVPS to support the Air Force Delta IV Heavy’s launch vehicle configuration and transportation. Work is scheduled to be complete by Dec 29, 2020.

Per the second contract worth $146.5 million, ULS will provide LVPS to support the Air Force Atlas V 551, 5M Payload Fairing 9ft Plug’s launch vehicle configuration and transportation. Work is scheduled to be complete by Dec 12, 2020 (read more: Boeing/Lockheed JV Unit Wins Two Contracts Totaling $417M).

4. Defense prime Raytheon recently clinched a modification contract worth $199.8 million from the U.S. Navy to procure 317 of the 17th Lot of AIM-9X Block II missiles – 107 for the Navy and 210 for the Air Force. It was awarded by the Naval Air Systems Command, Patuxent River, MD.

Per the modification, Raytheon will also procure 199 Block II captive air training missiles, 15 special air training missiles and 160 all up round containers. Moreover, the contract includes purchases for seven spare advanced optical target detectors, procurement of 11 spare guidance units (live battery), 22 spare captive air training missile guidance units, 23 guidance unit containers, one spare block I propulsion steering section and one spare block II propulsion steering section for the Air Force.

Work is scheduled to be completed by Mar 2020. Majority of the work will be carried out in Tucson, AZ (read more: Raytheon Wins $200M Deal for 317 AIM-9X Block II Missiles).

5. BAE Systems’ BAE Systems Land and Armaments subsidiary won a contract worth $133.6 million for early procurement material to support production of M109A7/M992A3 vehicle. Work under this deal will be performed in York, PA, and is expected to be over by Jul 31, 2018.

Last Week’s Performance

Defense biggies posted mixed numbers over the past five trading sessions. While only a few like Boeing, Rockwell Collins Inc. COL gained; others like General Dynamics Corp. GD, Northrop Grumman Corp NOC witnessed a drop in share price.

However, over the past six months, all of the industry majors delivered a stellar performance. Notably, Boeing gained the maximum at 24.01%, followed by General Dynamics.

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

Company Last Week Last 6 Months
LMT -0.18% 11.64%
BA 0.29% 24.01%
GD -0.77% 22.25%
RTN -1.15% 10.92%
NOC -0.49% 2.87%
COL 2.79% 20.69%
TXT -0.36% 16.37%
LLL -1.44% 18.40%

 

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