Defense Stock Roundup: Huntington Ingalls, Raytheon Win Big; Honeywell Offers Soft View

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The Aerospace-Defense industry saw mixed performance on the bourses on one hand and a generous flow of funds from the Pentagon on the other. Clearly, a 0.7% drop in the S&P 500 Aerospace & Defense (Industry) Index over the last five trading sessions and a 0.4% rise in the Dow Jones U.S. Aerospace & Defense Index resulted in the diverse share price performance.

Among last week’s highlights, defense majors Huntington Ingalls Industries, Inc. HII, Raytheon Company RTN, The Boeing Company BA, Textron Inc. TXT, Lockheed Martin Corp. LMT and General Dynamics Corp. GD secured a number of orders from the Department of Defense’s (“DoD”) daily funding session. Meanwhile, Honeywell International Inc. HON provided a tepid outlook for 2017.

(Read Defense Stock Roundup for Dec 15, 2016 here.)

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Recap of the Week’s Most Important Stories

1. Largest American military shipbuilder, Huntington’s Ingalls Shipbuilding business has secured a modification contract, which entails the procurement of USS Fort Lauderdale (LPD 28). Valued at $1.46 billion, the deal was awarded by the Naval Sea Systems Command, Washington, D.C. Work related to this deal is scheduled to be over by Oct 2021.

Notably, USS Fort Lauderdale is the 12th San Antonio-class amphibious transport dock ship of the U.S. Navy. Per the terms of the contract, Huntington will conduct detailed design and construction of USS Fort Lauderdale. Majority of the work related to this contract is set to be executed in Pascagoula, Mississippi, while the rest will be carried out at various sites throughout the U.S.

USS Fort Lauderdale helps in transportation of equipment and supplies from sea to shore. This in turn helps Marines execute amphibious assaults, expeditionary warfare missions as well as special operations like humanitarian assistance and disaster relief missions (read more: Huntington Wins $1.46B Deal for Amphibious War Ships).

2. Defense behemoth Raytheon clinched a foreign military sales (FMS) contract for full-rate production of VINSON/Advanced Narrowband Digital Voice Terminal (ANDVT) Cryptographic Modernization (VACM) program. Valued at $459 million, this contract was awarded by the Air Force Life Cycle Management Center, Joint Base San Antonio - Lackland, TX.

Per the terms of the deal, VACM End Cryptographic Unit (ECU) will maintain function and capability of the existing VINSON and ANDVT ECUs to the extent allowed by the National Security Agency. Work related to this contract is scheduled to be over by Dec 15, 2021.

Notably, ANDVT is a secure voice terminal that is used for low bandwidth secure voice communications throughout the U.S. Department of Defense (DoD). On the other hand, VINSON is a family of voice encryption devices, which offer tactical secure voice on UHF and VHF line of sight (LOS), UHF SATCOM communication and tactical phone systems (read more: Raytheon Wins $459M Contract for Secure Voice Transmission).

3. Bell-Boeing, the strategic joint venture (JV) between aircraft major Boeing and diversified U.S. conglomerate Textron’s wholly owned subsidiary – Bell Helicopter – won two modification contracts worth $411.9 million. The contracts were awarded by the Naval Supply Systems Command Weapons Systems Support, Philadelphia, PA. The contracts involve the repair of various parts of the V-22 aircraft.

The larger one of the contracts is valued at $246.2 million and could reach a worth of $545.2 million, if all the options are exercised. It covers a one-year base period and a one-year option period. The other contract, worth $165.7 million, has a two-year base period with no option.

Notably, formed in 1981, Bell-Boeing JV’s primary product is V-22 Osprey – a joint-service multirole combat aircraft that utilizes tiltrotor technology to combine the vertical performance of a helicopter with the speed and range of a fixed-wing aircraft (read more: Bell-Boeing JV Wins Two Navy Deals Worth $412M for V-22).

4. Pentagon’s largest defense contractor, Lockheed Martin received a modification contract from the Naval Air Systems Command, MD, for providing logistic services for the F-35 Lightning II aircraft. The contract is valued at $181.2 million.

The deal covers services including ground maintenance, action request resolution, depot activation, Automatic Logistics Information System, operations and maintenance, reliability, maintenance and health management implementation and support, supply chain management, and activities to provide and support pilot and maintainer initial training.

Notably, F-35 Lightning II is the fifth-generation fighter, which combines advanced stealth with fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. For 2016, Lockheed Martin expects to deliver 53 units of F-35 (read more: Lockheed Martin Wins $181.2M Follow-Up Contract for F-35).

Meanwhile, Lockheed Martin’s business unit, Space Systems Co., won a modification contract from the U.S. Navy to offer support services for the Trident II (D5) missile field processing and deployed system. Valued at $88.1 million, this deal was awarded by Strategic Systems Programs, Washington, D.C.

Work for this deal is scheduled to be complete by Sep 2021. Trident II (D5) is the latest generation of the Navy's submarine-launched fleet ballistic missiles, developed and produced by Lockheed Martin (read more: Lockheed Wins $88M Navy Deal for Trident II Support Services).

5. Defense major General Dynamics’business unit, Bath Iron Works (“BIW”), secured a modification contract for the continuation of integrated planning yard services for Arleigh Burke-class and Oliver Hazard Perry-class ships. Valued at $126 million, this deal was awarded by the Naval Sea Systems Command, Washington, D.C.

Per the terms of the deal, BIW will offer expert design, planning, and material support services for both maintenance and modernization and will prevent any lapse in programmatic coverage.  Work related to this deal is scheduled to be over by Dec 2017.

Another business unit of General Dynamics, Land Systems nabbed a contract from the U.S. Army to convert the Abrams M1A2 tanks into the M1A2S configuration. Valued at $82.4 million, this deal was awarded by the Army Contracting Command, Warren, MI. Work is scheduled to be completed by Mar 29, 2019.

Notably, the M1A2 is an advanced version of the M1A1, which includes a commander's independent thermal viewer, weapon station, position navigation equipment and a full set of controls and displays connected by a digital data bus. Owing to these upgrades, the M1A2 is equipped with an improved fire control system (read more: General Dynamics Unit Wins $82M U.S. Army Contract).

6. Aerospace giant Boeing won a contract worth $90 million for laser pod research and development. The contract was awarded by the Air Force Research Laboratory, Kirtland Air Force Base, New Mexico.

Per the terms of the deal, the company will offer research and development of high energy laser technologies.  Work related to the deal is expected to be over by Dec 15, 2021.

Boeing won another contract worth $82 million for the procurement of 12 low-rate initial production Infrared Search and Track (IRST) systems for the F/A-18E/F aircraft.  This contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Work related to the deal is expected to be over by Jan 2020.

Notably, the IRST system is a long-wave infrared detection system that targets airborne vehicles in a radar-denied environment.

Meanwhile, Boeing has announced that it has decided to lay off 8% of its workforce in the commercial airplanes unit in 2017, citing fewer sales opportunities and tough competition. The message came from company Vice Chairman Ray Conner and the new chief executive of Boeing Commercial Airplanes (BCA), Kevin McAllister.

7. Industrial goods manufacturer Honeywell recently offered a lackluster guidance for 2017 owing to continued macroeconomic woes. Simultaneously, the company anticipates fourth-quarter 2016 earnings of $1.74 per share, which is at the lower end of its previously guided range of $1.74–$1.78.

Also, Honeywell anticipates tepid demand for its business jets and mobile scanners in 2017 due to sluggish global growth, volatility in crude oil prices and a tempered Chinese economy. Consequently, the company projects 2017 earnings in the range of $6.85–$7.10 per share, while revenues are anticipated to be down 1% to up 2% year over year (read more: Honeywell Offers Tepid 2017 Guidance on Sluggish Demand).

Performance

Most of the major defense stocks have put up a stellar performance over the past five trading sessions, except for L-3 Communications Holdings, Inc LLL. Rockwell Collins Inc. COL gained the maximum, followed by Boeing.

For the past six months as well, the overall picture in the industry has been quite assuring with most stocks gaining ground. Notably, Textron gained the maximum, followed by General Dynamics.

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

0.57%

6.36%

BA

1.24%

19.40%

GD

0.87%

25.72%

RTN

0.67%

6.86%

NOC

1.31%

9.44%

COL

1.71%

10.18%

TXT

1.00%

26.29%

LLL

-1.25%

8.59%

 

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