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Defense Stock Roundup: Huntington Sees Solid Q4; Big Wins for Lockheed, Raytheon, General Dynamics

The fourth-quarter reporting cycle is drawing to a close, with 75% of the S&P 500 members having reported their results (as of Feb 15, 2017). Notably 68.8% of these index members surpassed EPS estimates with a beat ratio of 54.4% in terms of the top line. Coming to the Aerospace and Defense sector, all the companies in this space have released their results, depicting a better performance in comparison to the S&P 500 cohort. Encouragingly, 80% of the companies in this space came up with an earnings beating while 50% surpassed revenue estimates.

Meanwhile, last weekend's launch of a ballistic missile by North Korea posed a major challenge to the U.S. defense industry. Nevertheless, an overwhelming performance by the major defense biggies as well as a generous flow of funds from the Pentagon forced the major indices of the Aerospace-Defense sector to end in the green over the trailing five trading sessions. Consequently, the S&P 500 Aerospace & Defense (industry) Index rose 4.3% while the Dow Jones U.S. Aerospace & Defense Index inched up 2.9%.

Among this week's highlights, Huntington Ingalls Industries, Inc. HII posted better-than-expected results. Moreover, defense primes Lockheed Martin Corp. LMT , Raytheon Company RTN and General Dynamics Corp. GD clinched a few big contracts from the Pentagon.

(Read Defense Stock Roundup for Feb 10, 2017 here )

Recap of the Week's Most Important Stories

1. The largest military shipbuilder in the U.S., Huntington Ingalls ' fourth-quarter 2016 adjusted earnings of $3.67 per share surpassed the Zacks Consensus Estimate of $2.48 by 48%. Adjusted earnings also improved 88.2% from $1.95 per share in the year-ago quarter, driven by substantial top line as well as operating income growth. Barring the adjustment, the company's reported earnings came in at $4.20 per share, reflecting year-over-year improvement of 296.2%.

Total revenue in the fourth quarter was $1.92 billion, above the Zacks Consensus Estimate of $1.85 billion. The top line also improved 0.9% year over year to $1.91 billion on higher contribution from its Ingalls and Technical Solutions divisions.

The company received new orders worth $5.2 billion during 2016, as a result of which its total backlog reached $21 billion as of Dec 31, 2016 (read more: Huntington Ingalls Tops Q4 Earnings, Wins Ample Orders ).

2. Pentagon's prime contractor Lockheed Martin 's Space Systems business unit clinched a modification contract worth S540.8 million for the production of Trident II (D5) missile. The company will also offer deployed system support for the missile. Majority of the work related to the deal will be carried out in Magna, Utah; Sunnyvale, CA and the rest at other locations across the U.S.

The contract was awarded by Strategic Systems Programs, Washington, D.C. Work is scheduled to be complete by Sep 30, 2021.

Meanwhile, the company has won a modification contract from the U.S. Navy worth $95 million for the production of Trident II (D5) missile and offering deployment system support for the same. Majority of the work related to this deal will be executed in Sunnyvale, CA; and Cape Canaveral, FL, and the rest at other locations across the U.S. The company expects to complete this deal by Feb 4, 2018.

Trident II D5 is the latest generation of the U.S. Navy's submarine-launched fleet ballistic missiles, following the highly successful Polaris, Poseidon, and Trident I C4 programs. The Trident II D5 missile has achieved more than 160 successful test flights since design completion in 1989 - a record unmatched by any other large ballistic missile or space launch vehicle.

3. General Dynamics ' business unit, General Dynamics Land Systems won a contract from the Government of Canada to upgrade 141 Light Armoured Vehicle ("LAV") III vehicles. Valued at $308.7 million, this contract came after an LAV III upgrade contract awarded in 2011 and extended the service life for 550 vehicles upto the year 2035.

The latest contract is part of Canada's Light Armored Vehicle III Upgrade Program − to provide the country's military with updated ground-based platforms. The upgrades will improve the performance and survivability of the Canadian vehicles and cut long-term maintenance costs.

General Dynamics Land Systems is the leader in Light Armoured Vehicle platforms. It offers the forces with the most advanced technologies combined with combat-proven survivability (read more: General Dynamics Unit Wins $309M Canadian Army Contract ).

Meanwhile, General Dynamics' Electric Boat Corp business unit nabbed a contract worth $126.5 million for long lead time material (LLTM) associated with the fiscal 2019 construction of Virginia-class submarines (SSN 802) and (SSN 803). Per the terms of this deal, the company will offer LLTM for steam and electric plant components, the main propulsion unit efforts and ship service turbine generator efforts, and miscellaneous hull, mechanical and electrical system components. Work is expected to be over by Jan 2018.

The contract was awarded by the Naval Sea Systems Command, Washington, D.C. Majority of the work related to this agreement will be carried out in Sunnyvale, CA and the rest at various other sites throughout the U.S.

4. Defense behemoth Raytheon clinched a contract worth $128.5 million for mobile sensors operations and maintenance. Per the terms of the agreement, the company will offer non-personal services for operations and maintenance services.

The contract was awarded by Acquisition Management and Integration Center, Patrick Air Force Base, FL. Raytheon will execute work under this deal at Patrick Air Force Base, FL; and various overseas locations, and expects to complete the contract by Oct 31, 2021.

This Week's Performance

Majority of the defense biggies posted a stellar performance over the past five trading sessions. In particular, L3 Technologies, Inc. LLL gained the most at around 3.30%, followed by Northrop Grumman Corp. (NOC).

Over the past six months as well, all the industry majors delivered a stellar performance. Notably, The Boeing Company BA gained the maximum at 34.81%, followed by Textron Inc. TXT .

The following table shows the price movement of the major defense players over the past five trading days and the last six months.

Company Last Week Last 6 Months
LMT 1.83% 11.74%
BA 2.76% 34.81%
GD 2.35% 25.20%
RTN 1.57% 11.43%
NOC 3.08% 15.42%
COL 2.58% 15.40%
TXT 0.22% 25.96%
LLL 3.30% 14.79%

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Boeing Company (The) (BA): Free Stock Analysis Report

General Dynamics Corporation (GD): Free Stock Analysis Report

Lockheed Martin Corporation (LMT): Free Stock Analysis Report

Textron Inc. (TXT): Free Stock Analysis Report

Raytheon Company (RTN): Free Stock Analysis Report

L-3 Communications Holdings, Inc. (LLL): Free Stock Analysis Report

Huntington Ingalls Industries, Inc. (HII): 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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