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Defense Stock Roundup: Boeing Q3 Deliveries Shine Again, Raytheon Buys Foreground Security

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The defense space has in the past five trading sessions recovered from the lows it had been suffering lately. Among the important highlights last week, Boeing BA once again reported stellar Q3 delivery numbers helped by a strong commercial business.

Raytheon RTN cut a cyber deal that would boost its cyber-security portfolio. Lockheed Martin LMT has been in discussions with companies for a possible sale of its IT business, per media sources.

(Read Defense Stock Roundup for Sep 29, 2015 here.)

Budget Update

Last week, the House and Senate negotiators reached an agreement on a $612 billion defense authorization bill for fiscal 2016. The measure also includes an added $38 billion in overseas contingency funds to help the Department of Defense (DoD) get around mandatory spending caps for the new fiscal year that began Oct 1, 2015.

Recap of the Week's Most Important Stories

1. Not surprisingly, the aerospace giant The Boeing Company reported strong third-quarter 2015 delivery numbers. Its commercial deliveries rose 7% for the quarter given robust growth for its 787 Dreamliner and its best-selling 737 single-aisle jetliners, delivering a total of 199 commercial aircraft versus 186 a year ago.

Meanwhile, Boeing's deliveries in the defense and space business numbered 48 in the third quarter of 2015, flat year over year. Overall, Boeing's total deliveries in the third quarter jumped approximately 5.6% year over year. The company is on track to break the record number of 723 commercial jets that it delivered in 2014.

Apart from reporting impressive Q3 delivery numbers, this aerospace giant also clinched a defense contract. The company has received a contract worth nearly $127.1 million for B-1 integrated battle station for the B-1 weapon system from the DoD (read more: Boeing Gets $127 Million Contract for B-1 Weapon System ).

2. United Launch Alliance ("ULA"), a joint venture of Lockheed Martin and Boeing, has won a major modification contract worth $882.1 million from the U.S. Air Force for Evolved Expendable Launch Vehicle (EELV) capability for the Delta IV and Atlas V family of launch vehicles (read more: Boeing-Lockheed JV Wins $882M U.S. Modification Contract ).

This joined entity even nabbed a $232.9 million contract for launch vehicle production services (LVPS) under the requirement contract terms of the EELV Phase I contract. The contact is expected to run through Jan 28, 2018.

3. Defense contractor Northrop Grumman CorporationNOC has won an indefinite-delivery/indefinite-quantity ("IDIQ") contract from the U.S. Air Force for the Global Hawk unmanned surveillance plane, worth $3.2 billion. The company will provide continuous development, modernization and maintenance services for all variants of the aircraft in the U.S. Air Force's fleet. Contract work will be carried out in San Diego, CA and is expected to be complete by Sep 30, 2025.

Northrop Grumman is the original equipment manufacturer of the Global Hawk unmanned aerial vehicle, which the Air Force uses for long-endurance and high-altitude surveillance missions throughout the world (read more: Northrop Wins U.S. Air Force Global Hawk Contract of $3.2B ).

Again, Northrop Grumman won a $203.6 million option to sustain the Global Hawk unmanned aerial vehicle. This modification contract calls for Northrop Grumman to provide additional material and services comprising planning, operations support, and maintenance support. Work will be carried out in San Diego, CA and is expected to be complete by Sep 30, 2016.

4. Raytheon Co. made another cyber deal to broaden its cyber-security portfolio. It has acquired Virginia-based Foreground Security to add to its managed security services solutions and professional services capabilities related to cyber security.

Although the terms of the deal were not disclosed, the acquired company will operate as Raytheon Foreground Security and will be part of Raytheon Intelligence, Information and Services.

Foreground Security's products include its Virtual Security Operations Center and Automated Threat Intelligence Platform for advanced cyber monitoring, threat hunting and professional services.

Apart from strengthening its cyber-security world, Raytheon received nearly $160 million for Close-In Weapon System ("CIWS"). The company will provide MK 15 CIWS upgrades and conversions, system overhauls and associated hardware. This contract includes options which, if exercised, would bring the cumulative value to $461.7 million. This contract combines purchases for the U.S. and the government of New Zealand under a Foreign Military Sales program.

5. If media sources are to be believed, Lockheed Martin is possibly considering a spin-off of its government IT and services division, a move that would almost certainly create the largest government services provider in the U.S.

Lockheed Martin has reportedly been in talks to carry out a so-called Reverse Morris Trust ("RMT") deal through integrating some of its IT and services businesses with another government services contractor.

Lockheed Martin has been in discussion with Arlington-based CACI International Inc., McLean-based Science Applications International Corp., McLean-based Booz Allen Hamilton and Reston-based Leidos Holdings Inc. to carry out this tax-free spin-off. The believed transaction would generate an estimated $2 billion bonus for Lockheed Martin, as per sources. Reuters reported that the spun-off company would have a value of $4 billion.

Lockheed Martin is looking to pay down debt following its agreement in July to acquire Sikorsky Aircraft, the helicopter unit of United Technologies Corp, for $9 billion in cash.

Separately, this prime defense contractor continued to secure funds from the DoD. Lockheed Martin won a $392 million U.S. Navy contract for new procurement of Trident II (D5) missile production, D5 life extension development and production, and D5 deployed systems support. This modification contract will be valued at $1.48 billion if all options are exercised. Work under this contract is expected to be completed Nov 30, 2020.

Performance

In the last five trading days, share prices of all the major defense companies were in the green. General Dynamics Corp. GD gained the most, followed by Textron TXT .

In the last six months, the picture remains mixed with losses and gains. Although share prices of Lockheed Martin, General Dynamics, Raytheon and Northrop Grumman were in the positive territory, Boeing, Rockwell Collins COL , Textron and L-3 Communications Holdings 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 4.57% 7.20%
BA 4.09% -10.07%
GD 6.29% 7.42%
RTN 3.56% 1.91%
NOC 4.18% 5.72%
COL 4.76% -12.47%
TXT 5.18% -14.52%
LLL 4.95% -13.84%

What's Next in the Defense World?

Northrop Grumman will display its maritime security capabilities at the Pacific International Maritime Exposition 2015 in Sydney, Australia. Pacific 2015 is to be held at the Sydney Exhibition Centre at Glebe Island on Oct 6-8.

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NORTHROP GRUMMN (NOC): 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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