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Defense Stock Roundup: Carter Unveils FY2017 Defense Budget; Orbital ATK Hikes Dividend by 15%

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By now roughly 90% of the defense companies have released their Q4 numbers, giving us a clear trend of the results. The top line of these companies seems to have been hurt with only 25% coming in ahead of estimates. The earnings beat ratio is more encouraging at 87.5%, showing that the sector has held up pretty well this past quarter.

Adding to the positive sentiment, U.S. Defense Secretary Ash Carter unveiled the fiscal 2017 defense budget. The contemporary political scenario, marked by Russian assertiveness and the brutal rise of the Islamic State, has reshaped spending priorities to a large extent.

Apart from this, an investor-friendly move from Orbital ATK Inc. OA , a leading space, defense and aviation systems service provider, was an added booster for the investors.

(Read Defense Stock Roundup for Feb 2, 2016 here.)

Recap of the Week's Most Important Stories

1. U.S. Defense Secretary Ash Carter unveiled the Pentagon's fiscal year 2017 (FY 2017) budget request that is aimed at reshaping spending priorities taking into account new and evolving challenges. While addressing five key challenges, Carter said that President Obama's fiscal year 2017 budget will request $582.7 billion in funding for the Pentagon.

While speaking to the Economic Club of Washington, Carter said, "Today's security environment is dramatically different than the one we've been engaged with for the last 25 years and it requires new ways of thinking and new ways of acting" (read more: Pentagon 2017 Budget Plan Puts Defense Stocks in Focus ).

2. General Dynamics Corporation 's GD Mission Systems division has been awarded a contract by the U.S. Navy to continue to upgrade and maintain fire control systems and subsystems for nuclear ballistic-missile submarines operated by the U.S. and the U.K. This follow-on contract to a one awarded to the company in Dec 2014 extends over seven years and has a cumulative value of $440 million.

As part of the contract, the company will also build the fire control system for the Navy's Ohio Replacement submarine and the U.K. Navy's Successor-class ballistic missile submarine.

3. Lockheed Martin Corp.LMT received a $96 million contract from the U.S. Air Force to make vital modifications to the existing Global Positioning System ("GPS") control segment. The control segment works to operate all launched GPS III satellites before they migrate to the new operational control system.

Per the contract, Lockheed Martin will deliver operation services and supplies for the existing GPS control segment and provide satellite vehicle simulation modules, GPS simulator and GPS positional training emulator updates. The company will carry out the work in Colorado and Maryland through Dec 31, 2019.

4. Orbital ATK, Inc. declared a 15% hike in the quarterly dividend rate. The revised first-quarter dividend of 30 cents per share will be paid on Mar 24, 2016, to shareholders of record as on Mar 7. The increased rate raises the company's annual dividend to $1.20 per share from the previous payout of $1.04 per share (read more: Orbital ATK Board Hikes Quarterly Dividend Rate by 15% ).

5. The Boeing Co.BA has been selected to provide the Royal Australian Air Force (RAAF) with maintenance training devices for the P-8A. This marked the first international sale of maintenance training equipment used by the U.S. Navy. The contract value was however not disclosed.

Per the contract, Boeing will provide the service with a maintenance training suite. Maintenance training devices offer interactive, high-fidelity simulations based on actual mission systems software. Additionally, the hardware-based trainers are full-scale replicas of aircraft components.

Performance

The performance of defense stocks was more reassuring over the last five trading days. Unlike the last few weeks, there were more gains than losses. Rockwell Collins Inc. COL gained the most followed by Textron Inc. TXT . On the other hand, General Dynamics and Northrop Grumman Corp. NOC were the only losers.

In the last six months, the performance was mixed in the defense sector with gains and losses balancing each other out.

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 1.94% 4.12%
BA 1.66% -15.59%
GD -0.95% -10.76%
RTN 0.33% 17.00%
NOC -0.97% 8.50%
COL 2.85% -4.44%
TXT 2.27% -23.41%
LLL 0.39% 2.81%

What's Next in the Defense World?

Nothing major is lined up in the coming week.

Despite numerous tailwinds propelling the defense industry as a whole, defense stocks have been experiencing volatility with gains and losses in recent months. Nevertheless, continuing geo-political uncertainties, the threat of terrorist attacks and the potential positive defense budget revision will likely keep defense stocks in focus in the near future.

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NORTHROP GRUMMN (NOC): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

ROCKWELL COLLIN (COL): Free Stock Analysis Report

TEXTRON INC (TXT): 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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