Defense Stock Roundup: Lockheed Nabs Big F-35 Deal, L-3 Wins NGA Contract, Chuck Hagel Resigns

The defense sector bounced back over the last five trading sessions following a muted performance the week before.

Among the important updates in the past one week, Pentagon’s prime contractor Lockheed Martin Corp. (LMT) enjoyed most of the attention as it successfully nabbed quite a few defense deals.

Defense Secretary Chuck Hagel stepped down on Monday as President Obama is increasingly determined to reorganize his national security team amid escalating tensions overseas. There was also a buzz about Chuck Hagel running into a dispute with Susan E. Rice, the national security adviser, over the Syria policy.

(Read Defense Stock Roundup for Nov 18, 2014 for a recap.)

Iraq Update

As part of its proclaimed Inherent Resolve strategy, the U.S. military has conducted as many as 24 airstrikes against Islamic State (IS.V) forces in Iraq and Syria since Nov 21, 2014. In Syria, 9 strikes were near the border town of Kobani and Raqqa capturing three of the militant group's fighting positions. In Iraq, the airstrikes were carried out near Mosul, Asad, Baghdad, Ramadi, Tal Afar and Hit.

The news of Chuck Hagel’s resignation came amid these national security challenges and a revision of the Afghanistan exit plan. This marked the first major change in Obama’s Cabinet since his Democrats were routed in midterm elections three weeks ago. Hagel’s antiwar contour seemed to be less valuable when the government is increasingly inclined to a war footing.

Recap of the Week’s Most Important Stories

1. Lockheed Martin clinched a whopping $4.7 billion deal from the Pentagon for the eighth batch of F-35 Lightning II Joint Strike Fighter (:JSF) jets. The confirmation came less than one month after the news was leaked by media sources (read more: Lockheed Martin Seals $4.7B Deal for 8th Batch of F-35s).

Apart from this heavy weight defense deal, the company was awarded a $127.7 million modification contract for fiscal 2015 Acoustic Rapid Commercial-Off-The-Shelf (:COTS) Insertion (A-RCI) system engineering and technical support. The contract provides funding for the development and production of A-RCI and common acoustics processing for Technology Insertion 12 through Technology Insertion 14 for the U.S. submarine fleet and for foreign military sales.

2. The Boeing Co. (BA) also received numerous contacts from the Department of Defense order book. This defense major secured a $194.8 million modification contract for the procurement of 21 Lot 38 full rate production EA-18G airborne electronic attack kits (read more: Boeing Wins Modification Contract from DoD worth $194.8M). Additionally, Boeing grabbed a $517 million contract to train Royal Australian Navy and Army helicopter pilots for the next 25 years.

3. L-3 Communications Holdings Inc.’s (LLL) unit National Security Solutions won a five-year contract with an expected value of $218 million from the National Geospatial-Intelligence Agency (:NGA). Per the Information Technology Enterprise Managed Services Transport Services contract, the company will provide the NGA with engineering, operations and sustainment services.

4. General Dynamics Corp. (GD) has roped in Advanced Material Engineering Pte Ltd (“AME”), a subsidiary of Singapore Technologies Kinetics Ltd (ST Kinetics), to manufacture 40mm Air Burst Ammunition for the U.S. military. ST Kinetics will use its expertise to design and manufacture the new ammunition (read more: General Dynamics, ST Kinetics Tie Up on 40mm Ammunition).

General Dynamics has also partnered with Smith & Wesson Holding Corporation (SWHC) to compete for the U.S. Army's Modular Handgun System (:MHS) solicitation to replace the M9 standard Army sidearm. Per this strategic partnership, the two companies intend to submit an MHS based on the Smith & Wesson M&P Polymer Pistol platform.

5. Northrop Grumman Corp. (NOC) won a contract from the National Aeronautics and Space Administration (:NASA) for building the third Advanced Technology Microwave Sounder (:ATMS) for the National Oceanic and Atmospheric Administration's (:NOAA) Joint Polar Satellite System (:JPSS). The contract is worth $121 million (read more: Northrop to Build 3rd ATMS for Joint Polar Satellite System).

The company also secured a contract worth $116 million for upgrading the AN/AAQ-28(V) LITENING targeting pods for the Air Force, Air Force Reserve, Air National Guard and Marine Corps (read more: Northrop Grumman Wins $116M U.S. Military Contract).

Performance

Defense companies have traded in the green following a week of tepid trading sessions. Textron Inc. (TXT) was up the most with 4.19% followed by Boeing with 3.02%.

In the past six months, all the major defense companies have reported gains. General Dynamics has clocked the most with 24.52% share price appreciation.

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

What’s Next in the Defense World?

We remind investors that the Zacks Industry Rank for aerospace/defense is within the top one-third of the list of 260-plus industries. Hence, the prospects of this industry are still very much in place. (to know more, please see: Zacks Industry Rank).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the Full Research Report on NOC
Read the Full Research Report on TXT
Read the Full Research Report on BA
Read the Full Research Report on GD
Read the Full Research Report on LLL
Read the Full Research Report on LMT


Zacks Investment Research