U.S. defense stocks once again paid the price for another indecisive move by President Trump with respect to his dealings with North Korea. On May 24, the White House called off the planned Jun 12 meeting in Singapore due to North Korea's "tremendous anger and open hostility" targeted toward Washington.
Interestingly, the stressed relationship between the United States and North Korea has long been a key catalyst for stocks in the U.S. aerospace and defense industry. No doubt, the initial cancellation of the summit, indicative at a possible improvement between the nations' relationship, was cheered by defense stocks.
However, according to a CNBC report on May 29, a tweet from Trump implied that the summit will take place in near future, although not most probably on Jun 12. This sudden resumption weighed on U.S. defense stocks. This is because an end to U.S.-North Korea tensions means less procurement of weaponries by the U.S. government, which in turn, will affect U.S. defense contractors' profit.
Consequently, major indices of the Aerospace-Defense space - the S&P 500 Aerospace & Defense (Industry) index and the Dow Jones U.S. Aerospace & Defense index - dropped 2.2% in the trailing five trading sessions.
Among the highlights from the last week, defense majors like Lockheed Martin Corp. LMT , The Boeing Company BA , Raytheon Company RTN and Orbital ATK OA secured a few orders from the Department of Defense's daily funding session.
Recap of Last Week's Key Stories
1. Lockheed Martin 's Aeronautics business division recently secured a contract worth $558.3 million to support the low-rate initial production of F-35 Lightning II aircraft of the 11th lot. Work related to the deal is scheduled to be completed by February 2023.
While majority of the task will be performed in Orlando, FL, the rest will be executed in Redondo Beach, CA; Fort Worth, TX; Owego, NY and Samlesbury, United Kingdom (read more: Lockheed Martin Wins $558M Deal to Support F-35 Jets ).
The company also secured a modification contract for providing post production support to the Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-3 (PAC-3) missile. Work related to the deal is scheduled to be over by May 19, 2019.
The contract includes domestic and foreign military sales to Netherlands, Germany, Japan, Saudi Arabia, Kuwait, Qatar, Taiwan, United Arab Emirates and South Korea.
This $282-million deal was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama (read more: Lockheed Martin Clinches $282M Deal to Support PAC-3 Missile ).
2. Boeing clinched a modification contract worth $416.4 million for the full-rate production of three P-8A multi-mission maritime aircraft of the 9th lot. Work related to this deal is scheduled to be completed by October 2020.
The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the deal, Boeing will manufacture and deliver the jets to the U.S. Navy.
Majority of the work will be executed in Seattle, WA. Fiscal 2018 aircraft procurement (Navy) funds will be used to finance this task (read more: Boeing Wins $416M Navy Deal to Manufacture P-8A Aircraft ).
3. Raytheon 's Integrated Defense Systems (IDS) business unit recently won a modification contract for providing Romania with Phased Array Tracking on Radar to Intercept Option (PATRIOT) Fire Unit. The deal came under the foreign military sales (FMS) program.
Valued at $395.8 million, the contract has been awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama. Work related to the deal will be performed in Andover, Tewksbury, Marlborough and Burlington, MA; Pelham, NH; McKinney, TX and Portsmouth, RI.
The project is scheduled to be completed by Apr 30, 2020 (read more: Raytheon Wins $396M Deal to Modify Romania's PATRIOT System ).
4. Orbital ATK announced that it has received an order from NASA for two additional Joint Polar Satellite System (JPSS) spacecraft, which will be operated by the National Oceanic and Atmospheric Administration (NOAA).
Currently, the company is involved in the construction of the JPSS-2 spacecraft. Post the new order, it is likely to build three JPSS spacecrafts (JPSS-2, JPSS-3, and JPSS-4) for NASA that are expected to provide critical weather forecasting data along with advance environmental and oceanographic science. Valued at about $460 million, the deal is expected to close by 2021, 2023 and 2026, respectively (read more: Orbital ATK Wins Order for 2 Additional JPSS Satellites ).
Over the last five trading sessions, the defense biggies put up a mixed show. While Lockheed Martin gained the most with a 2.2% gain in its share price, General Dynamics lost the most with a 1.2% drop in the same.
However, over the last six months, the entire industry has put up a stellar performance, except General Dynamics and Rockwell Collins. Keeping up with its usual trend, Boeing once again gained the most, with its shares surging 30.9%, followed by Raytheon.
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 ||2.18% ||3.15% |
|BA ||-0.69% ||30.89% |
|GD ||-1.24% ||-0.62% |
|RTN ||0.58% ||5.25% |
|NOC ||0.67% ||1.28% |
|COL ||-0.41% ||-0.58% |
|TXT ||-0.95% ||0.97% |
|LLL ||0.79% ||1.99% |
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