Defense Stock Roundup: Lockheed Scores Big; Huntington, Northrop In Focus

Last week, the stock market oscillated between gains and losses due to widespread volatility. While on the one hand, energy stocks gained big on the OPEC’s decision to cap crude oil output, financial issues at Deutsche Bank (DE:DBKGn) and a major sell-out in the bond market weighed on investor sentiments. As a result, the major market indices put up a mixed performance over the last five trading sessions.

The picture was quite similar in the aerospace and defense sector. While the S&P 500 Aerospace & Defense (Industry) index dipped 0.1%, the Dow Jones U.S. Aerospace & Defense Index inched up 0.04% during this time frame.

Among the week’s highlights, Pentagon’s prime contractor Lockheed Martin Corp. (NYSE:LMT) secured an impressive number of orders from the U.S. Department of Defense’s (“DoD”) daily funding session. Other defense primes like Huntington Ingalls Industries, Inc. (NYSE:HII) and Northrop Grumman Corp. (NYSE:NOC) also stayed in the limelight.

(Read Defense Stock Roundup for Sep 27, 2016 here.)

Recap of the Week’s Most Important Stories

1. United Launch Services clinched a modification contract from the U.S. Air Force for launch capability for the Delta IV and Atlas V families of space rockets. Note that United Launch Services is a subsidiary of United Launch Alliance (“ULA”) – a 50-50 joint venture (JV) owned by Lockheed Martin and aircraft major The Boeing Company (NYSE:BA) . The JV supplies the two most cost-efficient families of Evolved Expendable Launch Vehicles (EELV) – Atlas and Delta – to the U.S. government.

Valued at $860.8 million, the contract includes services like mission assurance, program management, systems engineering, integration of the space vehicle with the launch vehicle, launch site and range operations, and launch infrastructure maintenance and sustenance.

Formed in Dec 2006, ULA brings together Atlas and Delta for offering advanced launch solutions and assured access to space with 100% mission success. (Read more: Will Lockheed-Boeing's ULA Gain from the $861M Deal?)

2. Lockheed Martin’s Sikorsky Aircraft business unit secured a foreign military sales (FMS) contract worth $148.7 million from the U.S. Army for the sale of six UH-60M Black Hawk helicopters to the Taiwanese government. Notably, these six choppers have been uniquely configured to serve the Taiwan National Airborne Service Corp. Work is scheduled to be complete by Dec 31, 2021.

Sikorky clinched another FMS contract, values at $38.4 million, for four of these helicopters for the Tunisian government. These uniquely modified choppers will offer support to the Tunisian Ministry of National Defense.

Sikorsky grabbed another order, worth $90.2 million, for offering non-personal technical field service for the UH-60 Blackhawk choppers. This takes the total value of the three aforesaid contracts to $277.3 million.

Notably, Sikorsky’s Blackhawk helicopter has been the work-horse for the Army, performing multi-mission tactical operations since 1978. While UH-60 is one of the legacy Blackhawk models, UH-60M is the most efficient and last modified version of this family of copters. It is a twin-engine, medium-lift utility copter that offers fail-safe service, during both day and night, in the harshest weather conditions, anywhere in the world. (Read more: Lockheed's Sikorsky Wins $277M Army Deal for Blackhawks)

Meanwhile, Lockheed’s Space Systems Co. business unit secured two modification contracts from the Air Force with a total value of $217.0 million. The first one, worth $127.5 million, includes logistics support for the Space-Based Infrared System (“SBIRS”). Per the modification, Lockheed Martin will provide services for operations, and sustainment and support factory infrastructure for the SBIRS program.

Under the second contract, worth $89.5 million, the company will execute acoustic testing and verification for Advanced Extremely High Frequency (“AEHF”) satellite vehicles 5 and 6 as a risk reduction effort. (Read more: Lockheed Martin Unit Wins 2 Air Force Deals worth $217M)

3. The largest military shipbuilder in the U.S., Huntington Ingalls’ Newport News business division was awarded a contract for conducting repair work on the Navy’s nuclear-powered submarines and special mission submersibles. Valued at $400 million, the contract will offer other support facilities for these submarines and moored training ships.

Per the terms of the agreement, repairing services of the submarines will include overhaul, maintenance, repair, modernization upgrades, technical engineering support, supplies and services, as well as nuclear-related touch labor support efforts.

Apart from being one of the only two nuclear-powered submarine makers for the Navy, Huntington is also the primary industrial developer in the state of Virginia. Over 70% of the active Navy fleet consists of Huntington Ingalls ships. (Read more: Huntington Wins $400M Contract for Submarine Repair)

4. Another defense major, Northrop’s business unit, Systems Corp. nabbed a modification contract worth $255.3 million from the Navy for the low-rate initial production (LRIP) of the MQ-4C Triton unmanned aircraft. Work is scheduled to be complete by Aug 2020.

The original LRIP deal involved the purchase of three MQ-4C Triton unmanned planes, one main operation control station and one forward operation control station, training courseware, and tool by the Navy. The latest decision marks the beginning of the production and deployment phase of the Navy’s acquisition process.

Notably, MQ-4C Triton is a new broad-area maritime surveillance (BAMS) unmanned aircraft system (UAS) manufactured by Northrop Grumman for the Navy. The Pentagon had awarded the company a contract worth $1.16 billion for the MQ-4C BAMS program in Apr 2008 and the first MQ-4C was unveiled in Jun 2012. (Read more: Northrop Grumman Inks $255M Navy Deal for MQ-4C Triton)

Northrop won another contract from the Navy for building 10 additional MQ-8C Fire Scout unmanned helicopters. This deal takes the total number of MQ-8C Fire Scout air vehicles under the original contract to 29, extending the range and endurance of naval operations. MQ-8C Fire Scout is a mature helicopter, which has accrued over 730 flight hours.

5. General Dynamics Corp. (NYSE:GD) was awarded a contract worth $154.7 million by the U.S. Defense Intelligence Agency (DIA) to offer enterprise communications services to the Directorate for Information Management and Chief Information Officer. The deal has a five-year ordering period and is scheduled to expire on Sep 28, 2021.

General Dynamics is one of 50 companies picked by the DIA in Jul 2015 to compete for information technology support orders to defense and intelligence agencies under the E-SITE vehicle.

Last Week’s Performance

The major defense stocks put up a weak show last week, with most of them losing around 1% or more, except Boeing and Textron Inc. (NYSE:TXT) . Despite the big contract wins, Lockheed remained the biggest loser, having recorded a 2.12% drop in its price, while General Dynamics witnessed the smallest decline.

Nevertheless, over the past six months, most of the stocks in this sector have been on the rise, except Rockwell Collins Inc. (NYSE:COL) . L-3 Communications Holdings, Inc. (NYSE:LLL) witnessed the maximum gain, followed by General Dynamics.

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

What’s Next in the Defense Sector?

L-3 Communications is slated to present the ROVER 6 wideband ISR system at the 2016 Association of the United States Army (AUSA) Annual Meeting and Exposition between Oct 3–5 in Washington,DC. The versatile ROVER communications system is a proven radio that delivers high-speed transmit and has the receive capability of wideband video and data, thereby enhancing combat effectiveness and reducing decision-making timelines.

Meanwhile, Rockwell will also present a handful of its products at the 2016 AUSA Annual Meeting and Exposition. These includes the TruNet networked communications solution to ensure secure connectivity between ground and airborne tactical teams, the FireStorm integrated targeting system – a combat proven, lightweight precision targeting system that offers both JTAC/FAC with sub mil accuracy and digital connectivity to the wider battle space, and the Integrated Digital Vision System (IDVS) which offers multispectral night vision sensors to soldiers.

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