Weak performance on the bourses dragged down defense stocks in the past five trading sessions. Further, U.S. Defense Secretary, James Mattis, in a recent news conference said that the withdrawal of troops from Afghanistan by the U.S. and its allies was done in a hurry, indicating that the decision is not politically appropriate. 

This might have dampened investors’ sentiments in the Aerospace-Defense space as if the troops had stayed put it would have boosted demand for weapons.  As a result, major indices in this space went south over the trailing five trading sessions.  While the S&P 500 Aerospace & Defense (Industry) Index lost 1.2%, the Dow Jones U.S. Aerospace & Defense Index slipped 1% during this period.

Nevertheless, a generous flow of funds from the Pentagon kept the industry going. Among last week’s highlights, defense majors Lockheed Martin Corp. (LMT Quick QuoteLMT - Free Report) , General Dynamics Corp. (GD Quick QuoteGD - Free Report) , United Launch Alliance (ULA) – a joint venture between Lockheed Martin and the Boeing Company (BA Quick QuoteBA - Free Report) , Northrop Grumman Corp. (NOC Quick QuoteNOC - Free Report) and Raytheon Company – clinched a handful of contracts from the U.S. Department of Defense.

(Read Defense Stock Roundup for June 23, 2017 here)

Recap of the Week’s Most Important Stories

1. Pentagon’s largest defense contractor, Lockheed Martin’s business segment, Rotary and Missions Systems (RMS), secured a reimbursement contract to procure engineering services for Acoustic Rapid Commercial-Off-The-Shelf Insertion (A-RCI) Technical Insertion (TI) 18-20. Work related to this deal is expected to be over by Aug 2018.

Valued at $130.8 million, this contract was awarded by the Naval Sea Systems Command, Washington, DC. The deal includes options, which, if exercised, will bring its cumulative value to $1.2 billion. The contract includes foreign military sales (FMS) to Finland, France, Germany and Singapore.

A-RCI is an open-architecture sonar system that uses legacy sensors. It helps the U.S. Navy in searching, detecting and tracking submarines and surface vessels in open-ocean and littoral sea environments without being counter-detected. Notably, the A-RCI TI 18-20 engineering services provide engineering development to support modernization requirements (read more: Lockheed's Unit Wins $131M Navy Deal for A-RCI Services).

Meanwhile, Lockheed Martin’s Aeronautics business division won a modification contract worth $258.7 million to offer low-rate initial production of the 10th lot of F-35 Lightening II Joint Strike Fighter. The contract has been awarded by the Naval Air Systems Command, Patuxent River, MD.

Per the modification, Lockheed Martin will support the F-35 Joint Strike Fighter production by procuring 129 alternate mission equipment. The modification includes 47.7% of the purchases for the Air Force; 15.6% for Marine Corps; 4% for the Navy; 23.4% for international partners; and 9.3% for FMS customers under the FMS program.

The work is scheduled to be completed by Jun 2020. Majority of the work related to this contract will be carried out in Inglewood, CA (read more: Lockheed Martin Unit Wins $258M Deal to Offer F-35s).

2. Nuclear submarine manufacturer General Dynamics’ subsidiary, Electric Boat Corp., clinched a $203 million modification contract to increase the design support requirements for Columbia-class submarines. The contract was awarded by the Naval Sea Systems Command, Washington, D.C.

Majority of the work will be performed at Groton, CT, while the rest will be carried out at Newport and a few other places across the U.S.

The Columbia-class submarine program, formerly known as the Ohio replacement submarine program, was designed by the U.S. Navy to replace its existing force of 14 Trident-armed Ohio-class ballistic missile submarines with a new class of 12 ballistic missile submarines (SSBNs) (read more: General Dynamics Wins $203M Contract For Nuclear Submarines).

3. United Launch Services, LLC (ULS) secured a contract worth $191.1 million from the U.S. Air Force to deliver the Space Test Program-3 (STP-3) satellite to its intended orbit. Notably, ULS is a subsidiary of ULA - a Lockheed Martin and Boeing joint venture (JV). Work for this deal is scheduled to be over by Aug 31, 2019.

Per the term, the JV will provide launch vehicle production, mission integration, launch operations, spaceflight worthiness and mission unique activities for an STP-3 mission. Work under this deal will be carried out in Centennial, CO; Decatur, AL; and Cape Canaveral, FL, with an initial launch capability date of June 2019.

4. Defense giant Northrop Grumman’s unit, Systems Corp., secured a modification contract worth $179 million from the U.S. Air Force. Per the terms, the company will provide hardware for large aircraft infrared counter measures (LAIRCM) and necessary support related to it. Work related to the deal is expected to be over by Apr 30, 2019.

Work under this deal will be carried out in Rolling Meadows, IL. The deal includes foreign military sales (FMS) to Australia, Canada, Saudi-Arabia and Strategic Airlift Capability/NATO Airlift Management Program.

The LAIRCM system is an active countermeasure that can automatically detect a missile launch. Currently, Northrop’s AN/AAQ-24(V) Directional Infrared Countermeasure (DIRCM) system is the only DIRCM system in production that can protect an aircraft from infrared-guided missiles. LAIRCM is one of its variants (read more: Northrop Wins $179M Deal to Supply LAIRCM's Hardware).

5. Defense behemoth Raytheon won a contract worth $90.8 million from the U.S. Navy to provide retrofit components for the F/A-18 aircraft. Work is scheduled to be completed by Oct 2019. Majority of the work will be carried out in Forest, MS.

Per the terms, Raytheon will offer supplies and services including 210 Configuration D retrofit components − four Configuration D validation and verification kits; and 206 Configuration D retrofit component kits forming part of three engineering change proposals.

F/A-18 Super Hornet is a twin-engine, supersonic, all weather multirole fighter jet, which is the U.S. Navy’s primary strike and air superiority aircraft. Raytheon provides APG-79 AESA radar systems for Super Hornets, which optimizes situational awareness and provides superior air-to-air and air-to-surface capability (read more: Raytheon Wins $91M Navy Contract for F/A-18 Support).

Performance

Over the last five trading sessions, majority of the defense stocks have put up a dismal show. Shares of Boeing witnessed the maximum decline of 2.8%. Meanwhile, Rockwell Collins Inc. and Textron Inc. (TXT Quick QuoteTXT - Free Report) posted a positive performance.

Over the last six months, the performance of the industry has been stellar, except that of Textron. Boeing gained the most, with its shares rising 27.02%, 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

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