Over the last five trading sessions, defense stocks have closed
in the green thanks to geopolitical tensions that acted as a driver
in the military and defense space otherwise beleaguered by budget
The U.S. Department of Defense (DoD) eased restrictions on
Lockheed Martin Corp.'s (
) fifth-generation fighter plane, the F-35. In another encouraging
headline, the British government said that it will pay about 235
million pounds ($392 million) to the defense major Raytheon Co. (
) for unlawfully terminating a contract for an electronic border
(Read the last recap here:
Defense Stock Roundup for Aug 12, 2014
Following a series of U.S. air strikes, Iraq's Mosul dam - the
largest dam of the country - was recaptured. Kurdish forces had
been fighting with U.S. air support to retake it since Aug 16. The
U.S. military used fighters, bombers, attack and unmanned aircraft
to conduct 35 strikes and destroyed 90 targets including nine
Islamic State (IS) positions and eight vehicles around the Mosul
The recapture marks a major victory against the IS jihadists since
they launched a major offensive in northern Iraq in June, brushing
aside Iraqi security forces.
Meanwhile, Iraq's Prime Minister Nouri al-Maliki resigned putting
an end to his eight years of rule. This opens a new political
period that U.S. officials hope will pose a more united front
against IS militants. Mr. Maliki's departure came after intense
pressure from other Shiite members of his political group, as well
as Shiite religious figures. The U.S. and Iraq's close ally Iran
have also been all for ousting Maliki.
Recap of the Week's Most Important Stories
1. Aerospace and defense operator Raytheon
Company received a favorable decision from the Arbitration
Tribunal, which settled the ongoing dispute between Raytheon
Systems Limited (Raytheon UK) and the United Kingdom Home Office
relating to the eBorders program (Read more:
Raytheon Awarded Damages in UK Contract Termination
2. The U.S. DoD has eased restrictions on
Pentagon's prime contractor Lockheed Martin Corp.'s F-35 jet. This
allowed more than 20 test planes in the U.S. fleet to fly six hours
between engine inspections instead of three.
Lockheed Martin's F-35 Joint Strike Fighter - the world's most
expensive weapons system, costing around $400 billion - came across
an unexpected hurdle following an emergency at Eglin Air Force Base
in Florida on Jun 23, when a fire in the rear of one plane
compelled the pilot to terminate a takeoff. The jets were grounded
for three weeks after the incident, and have since been imposed
with flight limitations. Contract talks between prime contractor
Lockheed and engine manufacturer Pratt & Whitney - a unit of
diversified conglomerate United Technologies Corp. (
) - are now progressing for the upcoming batch of aircraft and
3. In a separate development, Lockheed Martin
Aeronautics Company, a major unit of Lockheed Martin, received a
$232.8 million contract from the U.S. Naval Air Systems Command
(NAVAIR) to perform non-recurring sustainment activities, to
include procurement of 19 training devices and 69 items of complex
support equipment. The work on this contract is expected to be
completed in Jun 2017. This is a modification to a $535.3 million
F-35 Lightning II Low Rate Initial Production (LRIP) Lot VI
contract awarded in Aug 2011.
The Boeing Co.
) won a $295.6 million contract from the U.S. Navy to buy parts
required for production of 12 more P-8A spy planes, including 8 for
the U.S. Navy and 4 for the government of Australia. The aircraft
will substitute the P-3 spy planes of the U.S. Navy, which have
been in service for more than 40 years. In February, Boeing had won
a $2.1 billion contract to manufacture the initial batch of 16 P-8A
Poseidon long-range maritime spy planes for the Navy.
Northrop Grumman Corp.
) secured a $240.7 million U.S. Air Force contract for three Global
Hawk unmanned aircraft of the Block 30 variety. Each unit will
contain enhanced integrated sensor suite and an airborne signals
intelligence payload (ASIP), as well as two additional ASIP sensors
as retrofit kits. The work on this contract is slated for
completion by the end of Jun 2017. This is a modification contract
to a $114.2 million firm-fixed-price contract awarded in Sep 2013.
All the big defense stocks have closed in the green following quite
a few weeks of volatility. The biggest gainer was L-3
Communications Holdings Inc. (
), with Boeing close at its heels.
However, in the past six months, the market reaction has been more
or less mixed. Although a few defense companies like Lockheed
Martin, General Dynamics Corp. (
), Northrop Grumman Corp. and Textron Inc. (
) have reported in the green, other behemoths like Boeing,
Raytheon, Rockwell Collins (
) and L-3 Communications were in negative territory. General
Dynamics is the sole defense stock to have gained in the double
digits over the six-month time frame.
The following table shows the price movement of the major defense
players over the past five trading days and during the last six
Last 6 months
What's Next in the Defense World?
The defense sector is up against an apathetic market as military
budgets remain under pressure in the U.S. and the easy upward slope
of last year is likely to hit a plateau. Yet, the ongoing Iraqi
civil war, escalating tensions in Eastern Europe and demand for
defense products in the Middle East and other Asian nations keep
the hope alive for the sector.
We remind investors that the Zacks Industry Rank for
aerospace/defense is within the top one-third of the list of
260-plus industries. Hence, the prospects for this industry are
still very much in place. We however expect the slightly
flat-to-bearish run of the defense stocks to persist in the coming
days (to know more please see:
Zacks Industry Rank
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NORTHROP GRUMMN (NOC): Free Stock Analysis
TEXTRON INC (TXT): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
ROCKWELL COLLIN (COL): Free Stock Analysis
RAYTHEON CO (RTN): Free Stock Analysis Report
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