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Defense Contractors on Cloud 9

Published: September 18, 2017
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Source: Wolf Street

The Senate is expected to pass by a wide margin a $700-billion defense bill today. When it comes to extravagant military spending, Congress is relentlessly bipartisan, and all bickering stops, as long as the bacon gets spread to every district and state.

“The 1,215-page measure defies a number of White House objections, but Trump hasn’t threatened to veto the measure,” the Washington Post mused. “The bill helps him honor a pledge to boost military spending by tens of billions of dollars.”

So who gets this money?

It’s going to get spread around, but defense contractors are going to get a chunk of it, and they’ve been on cloud 9 all year. Their shares – fired up by plenty of saber-rattling – have mostly soared from all-time high to all-time high.

These are some of the biggest defense contractors and their shares year-to-date as of this morning:

  • Rockwell Collins (COL), to be acquired by United Technologies: $130.90, up 40.6% YTD
  • United Technologies (UTX) is gobbling up Rockwell, got beaten down 8% since July, and is the exception: $113.04, up a measly 3.1% YTD
  • Boeing (BA), after implementing a series of big layoffs in the US: $253.51, up 61% YTD
  • Northrop Grumman (NOC): $274.23, up 16% YTD
  • Orbital (OA) jumped 20% this morning to $132.60, up 48% YTD
  • Raytheon (RTN) $183.06, up 26% YTD
  • Lockheed Martin (LMT) $303.74, up 19.8% YTD
  • Honeywell International (HON) $137.50, up 18.4% YTD

Orbital jumped 20% this morning after the announcement that Northrop Grumman would acquire it for $134.50 a share, in a deal valued at $9.2 billion including the assumption of $1.4 billion in net debt.

This deal comes after Wall Street had been clamoring for a breakup of Northrop. For Wall Street, which gets big-fat fees off these transactions, it’s either breakup or acquisition, often in cycles.

 

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