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Defense Stock Roundup: LMT Wins Big Deal, RTN & UTX Get Final Nod for Merger

Zacks Equity Research

The U.S. defense space witnessed a generous flow of funds from the Pentagon over the past five trading sessions. However, performance of the defense stocks during this period remained disappointing. Coronavirus concerns continued to weigh on investors who engaged in major sell-offs.  

Consequently major indices of the aerospace and defense industry failed to put up a healthy show. Notably, the S&P 500 Aerospace & Defense (Industry) Index dropped 9.2%, while the Dow Jones U.S. Aerospace & Defense Index went down 7.8% in the trailing five trading sessions.

Among past week’s highlights, defense majors namely Lockheed Martin Corp. LMT, The Boeing Company BA, Northrop Grumman Corp. NOC and Raytheon Company RTN secured a handful of notable deals from the Department of Defense’s daily funding session. Meanwhile, Embraer ERJ released fourth-quarter 2019 results, while Raytheon and United Technologies UTX won the final approval for their merger. Moreover, Raytheon and Aerojet Rocketdyne AJRD signed a billion-dollar partnership deal.

Recap of Past Week’s Important Stories

1.    Lockheed’s Aeronautics business division secured a $4.71-billion modification contract to procure 78 F-35 combat jets and associated aircraft red gear. The deal was awarded by the Naval Air Systems Command, Patuxent River, MD.

The entire procurement is expected to be concluded by March 2023 (read more: Lockheed Martin Wins $4.8B Deal to Procure 78 F-35 Jets).

The company has also won a contract for manufacturing the 17th and 18th lots of Joint Air-to-Surface Standoff Missile (JASSM).  Valued at $818.2 million, this deal has been awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, FL.

The contract is scheduled to be completed by Oct 31, 2024 (read more: Lockheed Wins $818M Contract to Manufacture JASSM).

2.    Boeing clinched a $1.56-billion modification contract for the production of 18 P-8A Poseidon maritime aircraft. The deal has been awarded by the Naval Air Systems Command, Patuxent River, MD.

The Royal New Zealand Air Force is expected to begin receiving aircraft in 2022, while the Republic of Korea Navy will start receiving aircraft in 2023 (read more: Boeing Wins $1.56B Navy Deal Related to P-8A Jet Program).

3.    Northrop Grumman’s business unit, Aerospace Systems, clinched a modification contract worth $404 million to offer non-recurring engineering and software support activities as well as product support for E-2D Advanced Hawkeye (AHE) full-rate production (FRP).

Work related to the deal is expected to be completed by March 2025. Per the terms, the company will procure two E-2D AHE aircraft, one each in FRP of the 8th and 9th lots (read more: Northrop Wins $404M Deal to Aid E-2D Advanced Hawkeye Program).

4.    Raytheon’s Missile Systems unit won a $146.1-million contract to provide guided missile round packs and spare replacement components for the Block 2 and 2A variants of the Rolling Airframe Missile (RAM) system. The contract was awarded by the Naval Sea Systems Command, Washington, DC.

The entire task is scheduled to be completed by June 2025 (read more: Raytheon Wins $146M Navy Deal for Guided Missile Program).

Moreover, Raytheon and United Technologies have reportedly received all the regulatory nods required for closing their previously announced merger.The closing of the all-stock merger of equals, as it has been termed by the companies, will result in the creation of an aerospace and defense giant — Raytheon Technologies Corporation, headquartered in Waltham, MA (read more: United Technologies & Raytheon Get Final Approval for Merger).

Meanwhile,Raytheon’s Missile Systems business has reached a $1 billion, five-year strategic agreement to purchase propulsion systems from AerojetRocketdyne for Standard Missile products. Work on the programs will be spread across Aerojet Rocketdyne sites in Orange County, VA, the Solid Rocket Motor Center of Excellence in Camden, AR, and at its Advanced Manufacturing Facility in Huntsville, AL.

5.    Embraer incurred fourth-quarter 2019 adjusted loss of 51 cents per American Depository share (ADS), wider than the Zacks Consensus Estimate of a loss of 17 cents and the year-ago quarter loss of 13 cents.

Embraer’s fourth-quarter revenues came in at $2,085 million, which increased 22.8% year over year.

Embraer delivered 81 jets in the reported quarter, up 17.4% year over year.Backlog at the end of the quarter was $16.8 billion compared with $16.2 billion in the year-ago quarter.

Performance

Over the past five trading sessions, defense biggies mostly put up a weak show. Boeing lost the most, with its share price plunging 31.7%, followed by Raytheon, shares of which lost 24.6%.

The performance of industry players over the last six months has also been dismal. Boeing lost the most, with its share price slumping 64.4%.

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 Past Week Last 6 Months
LMT 0.89% -6.40%
BA -31.73% -64.42%
GD -3.94% -26.66%
RTN -24.64% -35.99%
NOC -2.15% -13.30%
TXT -16.18% -46.77%
LHX -3.66% -9.72%

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