Seeking Alpha: Huntington Ingalls Needs A New Driver

Since it spun out from Northrop Grumman (NOC), Huntington Ingalls (HII) has done pretty well. Shares of this pure-play Navy shipbuilder have risen about 150% in its time as a publicly-traded company, handily beating other defense and shipbuilding companies like General Dynamics (GD) and Lockheed Martin (LMT).

At least some of Huntington Ingalls' performance can be tied to its progress in improving margins, moving through an order book that included some very low-margin business and putting its 9% margin targets very much into play. The question investors should probably ask now is how the company continues to improve its results. Projecting defense spending down the line is tricky, but major projects like carriers, submarines, and destroyers could fare better. I like the prospects for Huntington Ingalls continuing to improve its profitability and free cash flow generation, but the shares seem to already reflect continuing improvement here.

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Huntington Ingalls Needs A New Driver

Seeking Alpha: LMI Aerospace Neither A-OK Nor DOA

Based on the comments managements have made with the earnings reports from companies like Honeywell (HON) and General Electric (GE), it sounds like the commercial aerospace market is getting back on to its growth trajectory. That's good news for Boeing (BA), EADS' Airbus, and the myriad suppliers that serve them, and it puts the bull thesis back into play that it's going to take many years of production growth to satisfy the burgeoning demand for air travel in regions like Asia and Latin America.

I have my doubts, though, as to whether LMI Aerospace (LMIA) is the right way to play this trend. The company does business with key players like Boeing, General Dynamics (GD), and Spirit AeroSystems (SPR), but I am not sure that LMI's capabilities in fabrication, machining, and engineering hold enough value to make this a key player in that trend. Along those lines, the company's margins and returns on capital have been erratic and generally unimpressive, albeit with enough bright spots here and there to make an investor wonder "what if" should management execute on its goals and targets.

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LMI Aerospace Neither A-OK Nor DOA

Investopedia: Orders Will Be The Wind Beneath Boeing's Wings

The run in commercial aerospace is on, and both Boeing (NYSE:BA) and EADS' Airbus will be spending the next few years delivering on an incredible backlog of commercial aviation orders. While there is still some reason to worry about the quality of the emerging market order book, Boeing has a rare opportunity to book several banner years of revenue and cash flow.

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http://stocks.investopedia.com/stock-analysis/2012/Orders-Will-Be-The-Wind-Beneath-Boeings-Wings-BA-UTX-TXT-GD0430.aspx

Seeking Alpha: Europe Sneezes And Parker Hannifin Catches Cold

Industrial motion control leader Parker Hannifin (PH) spooked the market on Friday, as investors took its earnings and guidance as the "Ghost of Industrial Reports Yet To Come". Although orders to Europe and Asia did indeed trail off throughout the December quarter and margins are a concern, history suggests this is more along the lines of a bump in the road. More to the point, with market leadership and a surprisingly consistent record of performance, value-oriented investors should keep a careful eye on this one.

Slower Motion In Q2
To be sure, Parker Hannifin's second quarter results were not the sort of beat-and-raise encouragement that a market already nervous about the industrial sector needed to see. Revenue rose about 8% (and the large majority of that organic), and that actually bested the average analyst guess. Reported sales growth was fueled by the North American industrial segment (up over 13%), while aerospace (up 8%), international industrial (up 6%), and climate/industrial controls (down 3%) trailed.

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Europe Sneezes And Parker Hannifin Gets A Cold

Investopedia: Greece - Of Banks And Tanks

The great thing about reality (at least for a writer) is that it has this way of going in directions so strange that not even fiction writers would dare attempt. If recent news out of Greece is to be believed, the Greek government has pulled a whopper - ordering some heavy-duty military hardware at a time when its largest European creditors are debating just how far they should push their own citizens to float this bankrupt nation. (For more on Greece, read 5 Reasons You Should Care About Greece.)

Tanks, with a Side of Skepticism  
Word broke yesterday morning that the Greek and U.S. governments have apparently reached agreement on a deal that will "grant" up to 400 Abrams tanks to Greece, along with a host of refurbishments and upgrades. Investors should realize that the sourcing on this is hardly airtight - the sources include Svenska Dagbladet and other less-than-regular outfits like Defencegreece.com and Hellenic Defence & Technology. Accordingly, this could be a hoax or old news made to seem new again, and it is worth noting that there aren't any corresponding entries in the Federal Register yet.

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http://stocks.investopedia.com/stock-analysis/2011/Greece--Of-Banks-And-Tanks-GD-NOC-NBG-DB-ING-CCH-MS1006.aspx

Investopedia: Navistar Looking For A Higher Gear

These are good days for truck makers as the market is enjoying a sharp recovery out of the depths of the recession. However, they are not equally good days for all players. While PACCAR (Nasdaq:PCAR), Volvo (Nasdaq:VOLVY.PK) and Daimler (Nasdaq:DDAIY.PK) are all enjoying good growth and share gains in the North American truck market, Navistar (NYSE:NAV) is the unfortunate source of that market share growth. While Navistar is showing some progress on the top line, investors have good reasons to be concerned about the company's market position and its decision to stick with its own engine designs.


Mixed Fiscal Q2 Performance
Navistar's performance in the second quarter was pretty mixed. True, the company did post revenue growth of 22% (on 17% shipment growth), but the company again seems to be leaking share to its rivals. Operating performance was more encouraging to a point - gross margin slid a bit (down 70 basis points), but operating income more than doubled from the year-ago level. Even so, this was weaker than most analysts had projected.

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http://stocks.investopedia.com/stock-analysis/2011/Navistar-Looking-For-A-Higher-Gear-NAV-PCAR-CMI-OSK-TXT-GD-VOLVY0609.aspx

An Intelligent Deal For Raytheon

The unpredictable and highly political nature of defense and intelligence spending make it difficult for small, publicly traded defense companies to really thrive. It is not all that surprising, then, that there has been a wave of M&A in the space - not only due to the increasing significance of electronic warfare and the need for bigger companies to add technology, but also the increasing uncertainty of spending in the face of higher deficits and debts.

With all that in mind, then, it is not surprising to see Monday's announcement that Raytheon (NYSE:RTN) reached a deal to acquire Applied Signal (Nasdaq:APSG). (For background reading, check out the Mergers & Acquisitions Tutorial.)

The Scoop on the Deal 
What is a surprise is that Applied Signal's management essentially put itself on the block back in October of this year. This is surprising because the company's management had not been very warm to the idea of a sale for many years. With that change in attitude though, things moved quickly.

Raytheon, one of the largest defense companies in the world, announced that it would acquire Applied Signal for $490 million in an all-cash deal that values Applied Signal at $38 per share. That is not only a 9% premium to the stock's closing price on Friday, but also a 90% premium to where the stock traded before management publicly discussed the possibility of a sale.

All in all, this is an eminently fair deal for Applied Signal shareholders. Relative to deals like Boeing (NYSE:BA), which bought Argon ST; Northrop Grumman (NYSE:NOC), which bought Essex; and FLIR (Nasdaq:FLR), which acquired iCX Tech; if APSG goes out at more than 15 times its trailing EBITDA, it's a fair price.

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http://stocks.investopedia.com/stock-analysis/2010/An-Intelligent-Deal-For-Raytheon-RTN-APSG-BA-LMT-LLL-AVAV-CACI1223.aspx

Can Defense Be Part Of A Good Offense?

As football season gears up once again, it seems inevitable that the airwaves will fill with the old cliché that "defense wins championships". Whether that is true or not in sports, it is worthwhile for investors to ponder that question for themselves. Stocks in the defense industry have not performed notably well of late, so it may be time to consider whether this sector could do more than offer a little protection to an investor's portfolio. 

The Winding Down Of Two Wars
Perhaps it seems odd to consider defense stocks in the wake of the announcement of the end of active combat operations in Iraq. The reality is that war is not an equal opportunity to all companies. Oftentimes valuable system upgrades are pushed off and innovative new projects are delayed as an ongoing war siphons off any available resources. 


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http://stocks.investopedia.com/stock-analysis/2010/Can-Defense-Be-Part-Of-A-Good-Offense-RTN-LMT-NOC-LLL-GD-BA-ATK0826.aspx