For Immediate Release
Chicago, IL - May 15, 2012 - Today, Zacks Equity Research
discusses the U.S. Aerospace & Defense, including
Lockheed Martin
(
LMT
),
L-3 Communications
(
LLL
),
Danaher
(
DHR
),
General Dynamics
(
GD
) and
Raytheon
(
RTN
).
A synopsis of today's Industry Outlook is presented below. The
full article can be read at
http://www.zacks.com/stock/news/75096/aerospace-defense-stock-outlook-may-2012
The U.S. is the world's largest aerospace and defense market,
and also home to the world's largest military budget. The growth of
the Aerospace and Defense industry depends largely on the spending
outlook of government departments, with the U.S. defense budget
being the primary driver. The industry largely depends on U.S.
government contracts.
Given the uncertain macroeconomic environment, not just in
the U.S. but also globally, the industry faces the risk of fewer
new orders as customers are more likely to postpone or cancel
contractual orders and/or payments.
Defense spending is the major source of revenue for the top nine
global aerospace and defense companies, with the US accounting for
more than 40% of total global defense spending. However, with the
U.S. government expected to institute greater austerity in its
defense budget going forward, defense companies will need to source
more orders from global clients. The geostrategic significance of
the industry and the related heavy export restrictions will come in
the way, to some extent, of those marketing efforts by U.S.-based
operators.
The U.S. defense budget for 2012 was $645.7 billion, with the base
budget at $530.6 billion and $115.1 billion approved for Overseas
Contingency Operations ("OCO") as supplementary defense spending,
mainly to fund ongoing wars.
In February this year, the Department of Defense (DoD) requested a
Pentagon base budget of $525.4 billion for 2013, which is
approximately $5.1 billion or 1% less than what is approved for
fiscal 2012, with $88.5 billion earmarked for OCO spending. The
significant reduction in OCO funding is mainly due to the decline
of U.S. military operations in Iraq in 2011. Going forward, OCO
funding is expected to continue to decline as troops redeploy out
of Afghanistan.
Since the September 2001 attacks, the U.S. government has spent
significant amounts on military campaigns overseas. The country has
already decided to gradually move out of Afghanistan, and the war
in Iraq has finally ended, which is expected to lower its
expenditure on foreign campaigns. However, its clandestine military
operations in other nations as part of anti-terrorism operations
will continue to add to foreign war expenses. However, the overall
trend in overseas military spending is unmistakably on the
downtrend.
OPPORTUNITIES
Acquisition, Merger and Strategic Alliance
The big defense operators armed with a strong balance sheets are
expanding their operations inorganically through acquisitions. The
U.S. Defense department also endorses mergers among U.S. defense
companies, provided they don't involve the top five or six
suppliers acquiring each other.
Lockheed Martin Corporation
(
LMT
) bolstered its product portfolio by acquiring Procerus
Technologies, a company specializing in autopilot and other
avionics for micro unmanned aerial systems. In November 2011, it
had acquired Sim-Industries B.V., a commercial aviation simulation
company located in the Netherlands. This acquisition would expand
both companies' closely related markets and expand the customer
base.
Another defense major,
L-3 Communications Holdings Inc.
(
LLL
), acquired the Kollmorgen Electro-Optical ("KEO") unit of
Danaher Corporation
(
DHR
). This unit will improve L-3's product suite with products like
submarine photonics systems and periscopes, ship fire control
systems, visual landing aids, ground electro-optical and
sensor-cueing systems.
In December 2011,
General Dynamics Corporation
(
GD
) completed the acquisition of Force Protection, Inc. The latter
provides blast- and ballistic-protected platforms that support the
armed forces of the U.S. and its allies.
In December 2011,
Raytheon Company
(
RTN
) announced that it has acquired Pikewerks Corporation, a privately
held company, to further extend Raytheon's capabilities to defend
against sophisticated cyber-security threats facing customers in
the intelligence community, the DoD and commercial
organizations.
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DANAHER CORP (DHR): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
L-3 COMM HLDGS (LLL): Free Stock Analysis
Report
LOCKHEED MARTIN (LMT): Free Stock Analysis
Report
RAYTHEON CO (RTN): Free Stock Analysis Report
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