Defense Stock Roundup: Trade War Fears Loom on Stocks, BA, LMT & GD Win Deals

On Jun 22, the European Union (EU) slapped tariffs on $3.2 billion of American products in response to taxes imposed on steel and aluminum by the United States. It seems like trade tensions have rapidly spread to other parts of the world in a ripple effect of the ongoing dispute between America and China over tariff impositions and trade protectionism issues.

Unfortunately, global stocks were caught in crossfire as is evident from their underperformance over the past five trading sessions. Consequently, a generous flow of funds from the Pentagon was not sufficient to boost the aerospace and defense stocks. Evidently, major indices of the Aerospace-Defense space — the S&P 500 Aerospace & Defense (Industry) index and the Dow Jones U.S. Aerospace & Defense index — dropped 0.6% in the last five trading sessions.

Among last week’s highlights, defense majors — The Boeing Company BA, Lockheed Martin Corp. LMT, General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII — secured a few orders from the Department of Defense’s daily funding session.

(Read Defense Stock Roundup for June 21, 2018 here)

Recap of Last Week’s Key Stories

1. Boeing secured a contract worth $1.5 billion for the production and delivery of 22 F/A-18E and six F/A-18F Super Hornets to support the government of Kuwait. Work related to the deal is scheduled to be over by January 2021.

The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Majority of the order will be carried out in El Segundo, CA and Hazelwood, MO. (read more: Boeing Wins $1.5B Deal for Delivering F/A-18 Jets to Kuwait).

2. Lockheed Martin’s Aeronautics division secured a foreign military sales (FMS) contract worth $1.1 billion for manufacturing 16 F-16 V Block 70 aircraft. Work related to the deal is scheduled to be completed by Sep 30, 2020.

The contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Ohio. Per the terms of the agreement, the F-16 jets will be delivered to the Kingdom of Bahrain. The production will be carried out in Greenville, SC and Fort Worth, TX (read more: Lockheed Martin Wins $1.1B Deal to Build F-16 for Bahrain).

The company’s Missile and Fire Control (MFC) business division also clinched a $364.6 million contract for Army Tactical Guided Missile and Launching Assembly Service Life Extension program. The deal was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL.

According to the agreement, Lockheed Martin will deliver the missiles and extension programs to the Romanian Army. Work related to the deal will be performed in Dallas, TX; Boulder, CO; Clearwater, FL; Cincinnati, OH and various other locations across the United States. The task is expected to get completed in Mar 26, 2020 (read more: Lockheed Martin Wins $365M FMS Deal for its Missiles Programs).

Again, Lockheed Martin’s Aeronautics business division clinched a $175.3-million modification contract to support the F-35 Lightning depot implementation plan for the U.S. Air Force, Marine Corps, Navy and non-Department of Defense (DoD) participants. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Work related to the deal will be performed in Nashua, NH; Torrance, CA; Fort Worth, TX and other various locations across the United States. The tasks are expected to be over by November 2021 (read more: Lockheed Martin Wins $175M Deal for F-35 Component Repairs).

3. General Dynamics’ business unit, Land Systems, secured a $258.6 million modification contract to upgrade Stryker flat-bottom vehicles to the patented double V-hull design. The contract was awarded by the U.S. Army Contracting Command, Warren, MI.

Work related to the deal will be performed in Sterling Heights, MI, and is expected to be completed in Mar 31, 2020. General Dynamics will utilize fiscal 2018 procurement of weapons and tracked combat vehicles’ funds for completing the task (read more: General Dynamics Wins $259M Deal for Stryker Land Vehicle).

Moreover, its subsidiary — Ordnance and Tactical Systems, Inc — clinched a $149.2-million modification deal for Hydra rockets, motors and associated components. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL, under the foreign military sales (FMS) program.

Per the terms of the deal, General Dynamics will deliver various quantities of M151, M274, M257, M278, M156, M264, M278, and WTU-1/B warheads for Hydra-70 rockets, motors and associated components to Saudi Arabia, Afghanistan, Kenya, Jordan, Nigeria and Qatar (read more: General Dynamics Wins $149M Army Deal for Hydra Rockets).

4. Huntington Ingalls’ Newport News won a modification contract worth $200.4 million to purchase additional long lead time material for supporting the USS Enterprise (CVN 80). Work related to the deal is scheduled to be over by February 2027.

The contract was awarded by the Naval Sea Systems Command, Washington Navy Yard, Washington, DC. The company will utilize fiscal 2018 shipbuilding and conversion (Navy) fund to finance the task, which will be executed in Newport News, VA (read more: Huntington Ingalls Wins $200M Deal to Support CVN 80 Program).

Performance

Over the last five trading sessions, the defense biggies put up a dismal show. Textron lost the most with a 2% decline, followed by Northrop Grumman.

However, over the last six months, the industry has put up a mixed performance. Keeping up with its usual trend, Boeing once again gained the most with its shares increasing 13%, while Lockheed Martin lost the maximum with an 8.3% decline.

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	-1.32%	-8.34%
BA	-1.27%	12.92%
GD	-0.99%	-0.52%
RTN	-0.37%	1.95%
NOC	-1.41%	-1.01%
COL	0.11%	2.00%
TXT	-2.00%	3.88%
LLL	-1.36%	-2.98%