In spite of the budget austerities and sequestration, defense
majors are riding high on foreign orders. These have to some
extent compensated for lower defense spending at home.
) recently received the green light from Pentagon for the sale of
some 15,000 anti-tank missiles to Saudi Arabia under two separate
deals. Pegged at a combined value of $1.1 billion, the anti-tank
missiles will be used to counter terrorism in this very
politically volatile region. Shares of Raytheon have gained 51.6%
year to date.
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Last Thursday, the Defense Security Cooperation Agency ("DSCA")
notified Congress of the proposals in two separate notices, one
for a $900 million deal for 13,935 missiles and the other for a
potential $170 million sale covering 1,764 missiles. Though
unlikely, lawmakers have 30 days to block the proposed sales.
The deals cover tube-launched, optically-tracked, wire-guided
("TOW") 2A/2B radio-frequency Missiles and associated equipment,
parts, training and logistical support. The TOW weapon system,
with the multimission TOW 2A, TOW 2B, TOW 2B Aero and TOW Bunker
Buster missiles, is the premier long-range, precision anti-armor,
anti-fortification and anti-amphibious landing weapon system used
throughout the world today. TOW is in service in more than 40
international armed forces and integrated into more than 15,000
ground, vehicle and helicopter platforms worldwide.
Raytheon is more focused on overseas sales to counter domestic
budget pressure. Best known for its missile defense systems, such
as the Patriot, Raytheon's international business is now expected
to garner close to 30% of total revenues this year. At home, the
2014 fiscal defense budget prioritized investments in Missile and
Space Systems, which is expected to bring in more contracts for
Raytheon. In addition, the company's focus on technological
advancements, as exemplified by its GaN systems, will make
defense solutions affordable and effective.
Investors may rightly be worried about the fate of the defense
industry in the U.S. However, Raytheon and other leading
Lockheed Martin Corp.
) have emerged relatively unscathed so far, thanks to foreign
Pentagon's largest contractor, Lockheed Martin, is touted to win
a sizeable contract from South Korea for 40 of its F-35 Joint
Strike Fighters. Although South Korea's Defense Ministry did not
clearly specify Lockheed Martin as the winner, the country's need
of the hour to beef up its stealth capability leaves the
company's F-35A stealth jet as the only viable contender in
response to North Korea's growing nuclear threat.
The Massachusetts-based defense contractor - Raytheon - currently
holds a Zacks Rank #1 (Strong Buy). Other stocks worth
considering in the defense sector include
The Boeing Company
General Dynamics Corp.
). Both these stocks presently carry a Zacks Rank #2 (Buy).