After the partial U.S. government shutdown announcement on Oct
Lockheed Martin Corp.
) announced the layoff of 3,000 employees beginning on Oct 7,
2013. Consequently, the share price of the leading defense prime
dropped 3.9% from Oct 1 to end at $122.50 at the close of session
on Oct 4, 2013.
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On Oct 1, 2013, the U.S. government began a partial shutdown
after the two houses of Congress, the House of Representatives
and the Senate, failed to reach a consensus on a new budget and
pass a budget before the start of the financial year. As a
result, more than 700,000 federal employees face unpaid leave
with no guarantee of back pay once the deadlock is over. It is
the first shutdown in 17 years.
The premier defense contractor working on the staggering $392
billion F-35 fighter jet program indicated that it would continue
to lay off more employees if the shutdown continues. However, it
did not specify numbers. The layoff has been triggered by the
closure of government facilities where work is usually performed
on awarded contracts. Moreover, the defense government business
is subject to inspection which cannot be executed now as the
federal employees are on unpaid leave.
Other big defense players suffering the brunt of the shutdown
) with share prices down 4.6%, United Technologies Corp. (UTX)
Northrop Grumman Corp.
), both witnessing a 2.9% decline since Oct 1, 2013. Also,
The Boeing Company
) indicated that it could face some disruptions with respect to
delivery schedule as some of its aircraft require approval of
furloughed Federal Aviation Administration inspectors before they
can be delivered to customers.
The layoff by Lockheed Martin was followed by United
Technologies' announcement to lay off 2,000 employees by Monday
and more than 5,000 if the shutdown continues into the next
As a silver lining to the current impasse, the U.S. Defense
Department has announced to call back most of its civilian
employees it furloughed last week under the federal government
shutdown. As a result, United Technologies canceled furloughs for
2,000 employees. We believe Lockheed would also likely call back
the current layoffs and not make further layoffs.
Driven by multiple strengths like growth in earnings per share
and notable return on equity, Lockheed Martin presently has a
short-term Zacks Rank #2 (Buy). Other stocks worth considering in
the space are Northrop Grumman and Raytheon, also with a Zacks
Rank #2 (Buy).