Defense Stock Roundup: BA, RTN Win Deals, GD Closes CSRA Buyout

Defense Stock Roundup: BA, RTN Win Deals, GD Closes CSRA Buyout

the recent joint venture (JV) that aircraft major Boeing formed with Saudi Arabian Military Industries is likely to keep the U.S. defense industry on a growth trajectory

Rising fears of a trade war between China and the United States unnerved investors, sending Wall Street on a bumpy ride for past few weeks. In particular, the market tumbled on President Trump’s proposal of imposing a tariff of $60 billion on Chinese imports. In retaliation China threatened to levy a hefty tariff on a number of American goods.

However, these developments did not have any major impact on the U.S. defense stocks. In fact, the recent joint venture (JV) that aircraft major Boeing formed with Saudi Arabian Military Industries is likely to keep the U.S. defense industry on a growth trajectory. The deal is also likely to boost the growth prospects of other defense majors as well. Evidently, a few of them have already started to win contracts from Saudi Arabia.

Consequently, major indices in the Aerospace-Defense industry ended in the green over the past five trading sessions. Both the S&P 500 Aerospace & Defense (Industry) index and the Dow Jones U.S. Aerospace & Defense index rose 1.7%, over that time frame. Moreover, keeping with its usual trend, the U.S. defense industry witnessed a generous flow of funds from the Pentagon over the trailing five sessions.

Among the highlights of the last week, defense majors Raytheon Company RTN, The Boeing Company BA, Lockheed Martin Corp. LMT, General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII secured a number of orders from the Department of Defense’s daily funding session. General Dynamics completed the CSRA acquisition.

Recap of Last Week’s Key Stories

1. Raytheon secured a contract fordelivering Patriot Missile Systems to Poland, after the country signed a Letter of Offer and Acceptance (“LOA”) agreement with the U.S. government.

Per Reuters, this deal, valued at $4.75 billion, requires Raytheon to deliver two Patriot System Batteries, each with two fire units in 2022. This is a major achievement for Raytheon, since in spite of the U.S. State Department having cleared a potential $10.5 billion sale of four Patriot defense systems to Poland last November, the deal got stuck in cross-border negotiations.

Per the agreement, Raytheon will continue to work with Polish defense companies and help them build key parts of the missile system (read more: Raytheon to Gain From US-Poland $4.8B Deal for Patriot).

2. Boeing won a contract worth $1.2 billion for providing long-lead non-recurring engineering to develop a baseline configuration for the production and delivery of 22 F/A-18E and 6 F/A-18F Super Hornets. These services will be providedto the government of Kuwait.

The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms, Boeing will offer long-lead radar warning receivers and aircraft armament equipment. The deal is expected to be completed by September 2022.

Majority of the work will be executed in Hazelwood, MI; Goleta and El Segundo,CA (read more: Boeing Wins $1.2B Deal to Support Kuwait’s F/A-18 Jets).

Moreover, the company secured a delivery order worth $430 million to provide F/A-18 planned maintenance interval-1 high flight hour depot support. This is a five-year contract with no option periods.

The contract was awarded by the Defense Logistics Agency Aviation, Philadelphia, PA. Work related to the deal will be carried out in Missouri, California, Florida and North Carolina and is expected to be completed by Mar 29, 2023 (read more: Boeing Wins $430M Deal for Maintenance Support of F/A-18 Jets).

Further, the company’s Defense Space and Security segment clinched a $312-million ceiling increase modification contract for providing Joint Direct Attack Munition (“JDAM”) tail kits. The contract has been awarded by the Air Force Life Cycle Management Center, Hill Air Force Base, Utah.

Per the terms, Boeing will offer additional JDAM strap-on inertial guidance kits that will receive guidance updates from global positioning systems. This will enhance the accuracy of conventional inventory bombs.

Work related to the deal will be performed in St. Louis, MO, and is scheduled to be completed by Mar 30, 2020 (read more: Boeing Wins $312M Air Force Contract for JDAM Tail Kits).

3. Lockheed Martin secured a $279-million modification contract for Patriot Advanced Capability-3 (PAC-3) missiles under the foreign military sales (“FMS”) program. Per the deal, the company will modify the PAC-3 missiles production contract to include cost reduction initiative (CRI) missiles and associated ground support equipment. The deal will cater to Saudi Arabia.

The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama. Operations related to the deal will be carried out in Grand Prairie and Lufkin, TX; Camden, AZ; Chelmsford, MA; Ocala, FL and Huntsville, AL.

Work related to the deal is scheduled to be completed by Feb 28, 2023 (read more: Lockheed Wins $279M FMS Contract for PAC-3 Missiles).

Moreover, the company’s Aeronautics business segment won a contract worth $211.3 million for offering Block 4.1 common capabilities pre-modernization efforts to support the preliminary design review of F-35 Lightning II jets. The deal will cater to the U.S. Air Force and the nation’s overseas partners.

The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Work related to this deal will be carried out in Fort Worth, TX. The project is expected to be completed by July 2019 (read more: Lockheed Martin Wins $211M Navy Deal to Upgrade F-35 Jets).

4. General Dynamics’ business division, Electric Boat, clinched a modification contract worth $126.2 million for purchasing missile tube long-lead-time material to support the Columbia-class fleet ballistic missile submarines. Work related to the deal is scheduled to be over by December 2023.

The contract was awarded by the Naval Sea Systems Command, Washington, DC. The agreement is a joint U.S./U.K. Common Missile Compartment program, which will be carried out in Quonset Point, RI.

The U.S. Navy will purchase 72% of the modification, while the government of the U.K. will acquire the remaining 28%, under the FMS program (read more:General Dynamics Wins $126M Deal to Aid Nuclear Submarines).

Meanwhile, General Dynamics recently completed the acquisition of IT service provider CSRA Inc. After engaging in a brief period of bidding war against CACI International, General Dynamics successfully acquired CSRA on Apr 3, for $9.7 billion, which includes a $2.8 billion debt.

CSRA has thus become part of General Dynamics’ Information Systems & Technology segment. Following the closure of the transaction, General Dynamics has acquired all of CSRA’s outstanding shares for $41.25 per share in cash.

The acquisition is anticipated to be accretive to the company’s earnings per share and cash flow next year. Further, the deal is expected to generate annual pre-tax cost savings of 2% of the combined company’s revenue by 2020 (read more: General Dynamics Completes CSRA Acquisition for $9.7B).

5. Huntington Ingalls’ Newport News business unit has won a modification contract worth $180 million for the purchase of additional long-lead-time material in support of PCU Enterprise (CVN 80). Work related to the deal is scheduled to be completed by February 2027.

The contract was awarded by the Naval Sea Systems Command, Washington, D.C. Fiscal 2018 shipbuilding and conversion (Navy) funding will be utilized to finance the task, which will be carried out in Newport News, VA.

Performance

Over the last five trading sessions, the defense biggies put up a solid show. Northrop Grumman NOC gained the most with its share price rising 3.1% in this period.

Over the last six months as well, the entire industry has put up a stellar performance. Keeping up with its usual trend, Boeing once again gained the most, with its shares surging 30.1%, followed by Northrop Grumman.

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 2.57% 10.19% BA 2.61% 30.10% GD 0.19% 3.64% RTN 1.88% 17.21% NOC 3.17% 23.01% COL 0.11% 1.81% TXT 1.10% 7.06% LLL 2.45% 12.49%

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