Defense stocks zoom - and dive

United Technologies slumps 28% while Raytheon leaps 27%

September 18, 2001|By Ted Shelsby | Ted Shelsby,SUN STAFF

Yesterday was a mixed day on Wall Street for defense contractors. Some military suppliers posted big gains, and others were hit hard from investors.

United Technologies Corp. was one of the big losers. Its stock fell more than 28 percent to close at $47.50.

On the flip side, Raytheon Co., a maker of the Patriot missile and a variety of other products for the military, posted a gain of nearly 27 percent.

"United Technologies got clobbered," said Nicholas P. Heymann, a defense analyst at Prudential Securities.

Investors seemed to overlook the company's production of Black Hawk and Comanche helicopters for the Army and focused on its Pratt & Whitney division, a producer of engines for commercial jetliners.

Heymann said that Pratt & Whitney accounts for about 40 percent of UTC's business. As a result, analysts are looking for a 25 percent to 30 percent drop in the company's profit this year as orders for new planes suffer.

Raytheon, which also produces an air defense system used on Navy destroyers, saw its shares rise $6.65 to $31.50. "They are pure defense," said Paul H. Nisbet, president of JSA Research.

Boeing Co. also is a defense contractor, but it depends heavily on sales of commercial planes. Its shares fell 17.6 percent to close at $35.80.

"Boeing is the reverse of Raytheon," said Jeff Pittsburgh, a defense analyst and president of Pittsburgh Research Inc. "They are down because a number of people are saying this country is not going to be producing as many planes in the future as it has in the past."

Nisbet said Boeing's commercial jet deliveries could drop 20 percent this year. To Boeing, that would be a loss of about $8 billion in revenue.

Nisbet attributed the nearly 15 percent jump in the stock price of Bethesda-based Lockheed Martin Corp.'s to its product mix. "They are almost pure defense," he said. "They don't have anything to distract from their defense operations."

He said Lockheed Martin will be one of the big beneficiaries of a strong national defense budget that is expected to jump about $100 billion for fiscal 2003.

"There was some emotional buying of Lockheed," said Pittsburgh. "Our peace dividend is turning into a war chip."

Meridian Medical Technologies Inc. of Columbia also caught investors' attention yesterday. The company is the sole manufacturer of automatic injectors used by soldiers in the field to deliver doses of nerve gas agents and morphine to lessen the pain of battlefield injuries. Its shares jumped 16.7 percent to $14.

James H. Miller, president and chief executive, said military contracts account for 45 percent of Meridian's business.

Under terms of its contract with the military, the company must have the ability to boost production sharply on very short notice. "So far, we have not had to increase production," Miller said.

Shares of Northrop Grumman Corp. jumped nearly 16 percent to close at $94.80.

Its big electronic systems division in Linthicum makes the AWAC airborne radar that was activated within minutes of the terrorist attack on the World Trade Center and the Pentagon, and makes fire control radars for the F-16 fighter plane.

Nisbet credited General Dynamics Corp.'s involvement in military ship production for the 9 percent jump in its shares.

Shares of Honeywell International Inc., another defense contractor with big involvement in commercial aviation, fell $6.20, or more than 17 percent, to $29.50. It holds about 60 percent of the world market for avionics for commercial aircraft, with about 60 percent of the total market.

Investors also saw a potential need for additional tank ammunition. Analysts say this is the reason that Alliant Techsystems Inc.'s shares gained $13.41, or 20.5 percent, to $78.70 yesterday.

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