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With “wars and rumors of wars” continuing to grow out of the general region of the Middle East, I decided to take a look at how the fortunes and share prices of the top five contractors to the U.S. Department of Defense have been doing. It seems to me that when we talk about the potential of war and when, frankly, in Syria, Iraq, Ukraine, and other nearby countries it has gone far beyond potential to a bloody and gruesome reality. It only follows that what the world has witnessed over these recent past years and what we are seeing now must have some impact on investments in defense contractors. Let’s take a look at some of what the top five look like.
Lockheed Martin (NYSE:LMT)
Shares of Lockheed Martin have risen from 92.21 on 17 September 2012 to 174.80 as of today. That’s almost a 90% increase. Compare that to a much more modest, albeit record-setting 37% increase in the S&P for the same period. It’s increase over the last 52 weeks is 35.8%, compared to 17.0% for the S&P. It has a current EPS of $9.64 and a market cap of more than $55 billion. It’s $15.5 billion, 9.6% share of the U.S. DoD 2014 budget represents 28% of its total revenue. On 12 September the company announced a new $147.5 million contract for a Surface Electronic Warfare Improvement Program with the U.S. Navy. That announcement came just four day after an announcement that the company had landed three contracts totaling $122.6 million.
The Boeing Company (NYSE:BA)
The Boeing share price has risen 78.1% over the same two year period to 125.92, although its 52-week increase is a more modest 9.7%, much of which has to do with non-military contract concerns that have created uncertainty for investors. It is generating an EPS of $5.80 and has a market cap of $90.7 billion. Its $12.1 billion, 7.51% share of the DoD budget is a much more modest 13.6% of its $88.4 billion revenue. Although it is the second leading supplier to the U.S. military, the company appears to have engineering design problems throughout the company that could make investment a bit worrisome.
General Dynamics Corp. (NYSE:GD)
General Dynamics has watched its share price climb 89.3% from 66.62 on 17 September 2012 to its current 126.33, and 44.5% over the past 52-week period. It’s $9.2 billion sales comprises 5.7% of the DoD budget and a whopping 30% of its total revenues. GD boasts an EPS of 6.76 and a market cap of $42.53 billion. On 12 September, the company announced that it had landed a $234.2 million contract for the U.S. Navy for work supporting active nuclear submarines. This came eight days after the company won a $5.76 billion contract from the British Ministry of Defense for 589 SCOUT special vehicles, which will be manufactured in Wales.
Raytheon Company (NYSE:RTN)
The Raytheon share price has increased 74.3% from 57.98 two years ago to its current 100.75. In the past 12 months it has grown by 26.5%. Raytheon’s 4.15% share of the DoD’s business amounts to $6.7 billion, or 30% of its own overall revenue of $$22.9 billion. Raytheon has a market cap of $31.3 billion and generates an EPS of $6.44. On 11 September Raytheon announced that it had been awarded a $109 million contract to keep the Patriot Air and Missile Defense System “battle ready for the U.S. Army and foreign military customers.” It was announced today that the company has begun production on the TALON laser guided rocket as part of a $117 million contract with the United Arab Emirates.
Northrop Grumman Corporation (NYSE:NOC)
Northrop Grumman’s share price has grown by 95.9% from $66.48 to $129.85. It has increased 32.9% in the last 52-week period. Northrop has just over 3% of the U.S. Dod business with $4.99 billion. That constitutes nearly 21% of the company’s $24.15 billion in revenues. Northrup has a market cap of $27.07 billion and generates an EPS of $8.93. This morning the U.S. Air Force announced that it had awarded a $354 million contract “to expanded their RQ-4 Global Hawk unmanned aircraft system.”
One thing that can be said with a great deal of certainty is that we should all have bought these stocks two years ago. Each has significantly outperformed the S&P and, with wars raging, despite the peace that everyone would prefer, it is likely that these companies and others like them will continue to be a reasonable part of a solid investment portfolio.
