Aerospace & Defense Stock Roundup: RTN, NOC Win Deals, EADSY Sees Record Orders

The Aerospace-Defense industry was rallying higher last week buoyed by the record order numbers released by Airbus Group EADSY for 2017, which surpassed The Boeing Company’s BA figures.  Also, a generous flow of funds from the Pentagon kept this industry on its toes over the trailing five trading sessions.

Consequently, major indices in the Aerospace-Defense industry ended in the green. Evidently, the S&P 500 Aerospace & Defense (Industry) index improved 3.7% over the said time frame, while the Dow Jones U.S. Aerospace & Defense index saw an uptick of 3.6%.

Among the other highlights of the last week, defense majors Raytheon Company RTN, Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC secured a number of orders from the Department of Defense’s daily funding session. Meanwhile Rockwell Collins’ shareholders approved its pending acquisition by United Technologies, Corp. UTX, whereas Embraer S.A. ERJ released 2017 delivery figures. 

Recap of Last Week’s Key Stories

1. Raytheon’s Integrated Defense Systems business segment secured a contract worth $641.6 million to perform Ballistic Missile Defense System (BMDS) test related activities for multiple radar platforms. Work related to this will be carried out in Huntsville, AL and Colorado Springs, CO.

The contract was awarded by the Missile Defense Agency, Huntsville, AL.  The BMDS test involves planning, executing, and analyzing sensor performance in BMDS flight tests and ground tests for each test event defined in the BMDS integrated master test plan.

Raytheon will utilize fiscal 2017 and 2018 research, development, test and evaluation funds to partly finance the task. The ordering period is from Jan 12, 2018, through Jan 11, 2023, with a one-year option period provided in the contract (read more:Raytheon Unit Wins $642M Deal for Ballistic Missile Test).

2. Lockheed Martin’s business unit, Sikorsky Aircraft, clinched a contract worth $193 million for manufacturing eight UH-60M aircraft for Saudi Arabian National Guard Forces and nine similar aircraft for the Royal Saudi Land Forces Airborne Special Security Forces.

This foreign military sales contract to Saudi Arabia was awarded by the Army Contracting Command, Redstone Arsenal, AL.

The contract will utilize fiscal 2018 foreign military sales to fund the work, which is likely to be executed in Stratford, CT. Work related to the deal is scheduled to be completed by Dec 31, 2022.

3. Northrop Grumman won a contract worth $172.7 million for Battle Field Airborne Communication Node (BACN). Work related to the deal will be executed in San Diego, CA, along with other overseas locations and is expected to be over by Jan 23, 2019.

Per the deal, Northrop Grumman will provide BACN payload operations and support for payload equipment and services. The contract was awarded by the Air Force Life Cycle Management Center's Space, Hanscom Air Force Base, Massachusetts.

Northrop Grumman will utilize fiscal 2018 overseas contingency operation and maintenance funds to finance the work (read more: Northrop Grumman Wins $172M Air Force Deal for BACN).

4. United Technologies recently moved a step closer toward completing the acquisition of Rockwell Collins. Notably, Rockwell Collins announced that more than 96% of the total votes casted for seeking the approval for the transaction, representing above 72% shareholders, voted in favor of the merger.

Both companies are presently awaiting other regulatory approvals and the fulfillment of other mandatory closing conditions. (Read more: United Technologies Moves a Step Closer to Rockwell Merger)

5. Embraer’s 2017 delivery figure was within the company’s guided range. The company has delivered 210 jets in 2017. Embraer reported commercial aviation market deliveries of 101 planes and executive aviation market deliveries of 109 in 2017. On a year-over-year basis, commercial deliveries dropped 6.7%, while executive aviation deliveries fell 6.8%.

The company also reported fourth-quarter 2017 delivery figures. Total deliveries in the fourth quarter were 73, compared with 75 in the year-ago quarter. Deliveries in the commercial aviation market totaled 23 jets in the fourth quarter, compared with 32 jets in the year-earlier quarter.

Embraer exited the fourth quarter with an order backlog of $18.3 billion, slightly lower than the third-quarter level of $18.8 billion (read more: Embraer's 2017 Deliveries Meet Estimates, Backlog Slips Q/Q).

6. A recently released report for 2017 positions Airbus at a higher level when compared to Boeing, in terms of order wins. The European plane maker’s net orders after cancellations were 1,109 jets in 2017, vaulting past Boeing’s 912. Without the cancellations adjustment, Airbus’ gross orders were 1,229 compared with Boeing’s 1,053. In terms of backlogs also, Airbus led the way by setting a new industry record by boasting an overall backlog of 7,265 aircraft at the end of 2017, compared to Boeing’s backlog of 5,864.

On the other hand, Boeing delivered 763 commercial planes in 2017, while Airbus dispatched 718 jets.

Performance

Over the last five trading sessions, the defense biggies put up a solid show, except Rockwell Collins. Boeing gained the most with its share price rising 9.6% in this period.

Over the last six months, the entire industry has put up a stellar performance. Keeping up with its usual trend, Boeing once again gained the most, with its shares surging 68.6%, followed by Rockwell Collins.

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	1.18%	16.07%
BA	9.57%	68.56%
GD	1.83%	3.52%
RTN	1.79%	17.95%
NOC	3.25%	19.90%
COL	-0.80%	24.90%
TXT	1.34%	19.49%
LLL	3.34%	23.62%

What’s Next in This Space?

General Dynamics and United Technologies are set to release fourth-quarter 2017 financial results before the market opens on Jan 24.

Northrop Grumman, Raytheon and L3 Technologies are scheduled to report fourth-quarter earnings on Jan 25, before the market opens.

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