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Defense Stock Roundup: Lockheed Rumored to Buy Sikorsky, AAR Beats on Q4 Earnings - Analyst Blog

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Heading into the second-quarter 2015 earnings season, defense companies are primed up to show their best. This has also been reflected in share gains over the last five trading days. Lockheed Martin Corp. LMT , particularly, seems to be in a winning spree.

Apart from that, the prime defense contractor is the lead candidate to buy Sikorsky Aircraft in a deal valued at more than $8 billion. Sikorsky is best known for its Black Hawk helicopters for the military.

(Read Defense Stock Roundup for Jun 23, 2015 here.)

Recap of the Week's Most Important Stories

1. Lockheed Martin nabbed a big defense contract, worth $718.3 million, to supply spare parts, support equipment, logistics system hardware and software, "full mission" simulators, and supply chain management and engineering services to the U.S. Air Force, Navy and Marines, and also for international clients. This is a modification contract needed to support low-rate initial production ("LRIP") Lot 8 F-35 Lightning II Joint Strike Fighter aircraft.

The LRIP Lot 8 contract was entered into last year, with 43 of the fighters scheduled for production under Lot 8. Again, the company's Mission Systems and Training business unit received a $153.9 million modification contract to procure Surface Electronic Warfare Improvement Program ("SEWIP") Block 2 systems for fiscal 2015 requirements. Under this SEWIP development program, Lockheed will upgrade existing out-of-production AN/SLQ-32(V) electronic warfare systems by providing improved anti-ship missile defense and situational awareness.

Lockheed Martin was also awarded a $101.3 million advance acquisition contract for 383 Helmet Mounted Displays for use with the F-35 by the Air Force, Marine Corps, Navy, international partners and the governments of Japan and Israel through Foreign Military Sales (FMS).

2. The race to acquire Sikorsky Aircraft Corp. - the beleaguered helicopter business of diversified conglomerate United Technologies Corp. UTX - seems to have heated up with rumors of advanced talks in progress with some of the probable suitors. Lockheed Martin has reportedly emerged as the frontrunner in the deal valued at over $8 billion. Although spokespersons of both companies have refused to acknowledge the proceedings, speculations are rife that a decision could be reached and made public very soon.

The possible takeover of Sikorsky is expected to be a strategic fit for Lockheed Martin. The move could prove to be a revenue booster for the prime defense contactor whose top line is under pressure from a shrinking defense budget (read more: Lockheed Martin to Buy United Technologies' Sikorsky? ).

3. Bell Boeing, a strategic alliance between Boeing Co. BA and Textron's TXT wholly owned subsidiary Bell Helicopter, has won a $332.5 million FMS contract from the U.S. Navy to supply five Bell Boeing V-22 Osprey tiltrotor aircraft to Japan.

This marks the first international sale of the tiltrotor aircraft. The contract work is expected to be completed in Jun 2018.

It is the first tranche of 17 V-22s and 40 engines built by Britain's Rolls Royce Holdings Plc that Japan plans to buy in the coming years for a total value of about $3 billion, according to a May 2015 congressional notification by the Pentagon's Defense Security Cooperation Agency.

4. AAR Corp.AIR , a worldwide leader in supplying aftermarket products and services to the global aerospace/aviation industry, reported fourth-quarter fiscal 2015 earnings of 36 cents per share, outpacing the Street Consensus by 63.6%. Quarterly earnings, however, declined 16.3% year over year, hurt by a rise in costs and expenses. Revenues also surpassed the Street expectation by 6.6% but dipped 1.1% year over year primarily due to lower contribution from its Expeditionary Services segment (read more: AAR Corp. Surpasses Earnings, Revenue Estimates in Q4 ).

5. Orbital ATK, Inc.OA clinched a $98 million contract from Lockheed Martin. Per the contract, Orbital ATK will provide the launch abort motor for the Orion human spaceflight capsule's Launch Abort System. The Orion spacecraft will launch aboard NASA's Space Launch System enabling humans to explore new deep space destinations (read more: Orbital ATK Gets Launch Abort Motor Contract from Lockheed ).

Performance

In the last five trading days, all the major defense companies have traded in the green. Northrop Grumman Corp. NOC gained the most, followed by Lockheed Martin.

The six-month picture is mixed as Boeing, Northrop Grumman and Rockwell Collins witnessed doubled-digit appreciation. Raytheon and L-3 Communications, however, ended in the red.

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 4.74% 4.59%
BA 4.11% 14.76%
GD 3.31% 8.08%
RTN 2.59% -3.95%
NOC 4.87% 11.79%
COL 2.17% 11.31%
TXT 3.19% 5.17%
LLL 3.80% -2.28%

What's Next in the Defense World?

Woodward, Inc. WWD is slated to report its third-quarter fiscal 2015 results on Jul 20, 2015.

Lockheed Martin is scheduled to release its second-quarter 2015 results on Jul 21, 2015 before the market opens.

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NORTHROP GRUMMN (NOC): Free Stock Analysis Report

TEXTRON INC (TXT): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

UTD TECHS CORP (UTX): Free Stock Analysis Report

AAR CORP (AIR): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

WOODWARD INC (WWD): Free Stock Analysis Report

ORBITAL ATK INC (OA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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