Some people will tell you that the best defense is a good offense. But I question the wisdom of going on the offensive without good intelligence.
If you're going to invest in the defense sector, it pays to keep a good eye on events throughout the theater of operations. I'll run down the week's top stories in the defense industry -- and give you a preview of coming attractions.
Over in Europe, Boeing (NYSE: BA ) arch-rival EADS's troubles just keep growing. As I mentioned a couple of months ago, France just issued a stern warning that EADS needs to get its rear in gear in prepping the A400M military transport for flight. If not, the A400M's coalition of backers might not be so willing to keep funding the project -- and could even switch their loyalties and begin ordering another transport, such as the C-17 from Boeing, instead.
On Monday, we learned that the situation could be even worse. Raising the possibility that EADS will itself choose to terminate the project, Airbus CEO Tom Enders opined: "Better an end with horror than horror without an end." Airbus parent EADS quickly disavowed the sentiment, and affirmed its commitment to build the plane. Yet with supply chain issues continuing to dog the A400M, and EADS itself decrying the plane's "unrealistic timetable" for development, storm clouds are gathering.
An earnings warning, B'Gosh
Speaking of storms, dark clouds eclipsed Oshkosh's (NYSE: OSK ) prospects for profits this year. On Tuesday, the armored vehicle manufacturer warned that it will need to write down its assets to the tune of perhaps $1.5 billion in fiscal Q2. The news chopped 5% off the stock's price Tuesday. (If you didn't notice the dip, that's because it was but a blip on Oshkosh's 80%-plus plunge over the past year.) Analysts now expect Oshkosh to report a loss for the quarter, and for the year as well.
Bad news begets good
If there's one plus to be found in Oshkosh's warning, it's that this allowed rival armored vehicle maker Textron (NYSE: TXT ) to shine by comparison. At the same time as Oshkosh was warning of losses, Textron confirmed for investors that by shuttering its troubled Textron Financial unit and getting what it can for the assets, it expects to end this year with $2.6 billion in cash. So it seems at least one financial/industrial powerhouse realizes that when your arm is gushing red ink, it's time to apply a tourniquet. Good on 'em.
Bringing up the rear in this week's column, Navistar (NYSE: NAV ) had the "honor" of becoming one of the very few stock tickers to bleed red yesterday. A little after noon Thursday, management issued a cryptic press release announcing that it has petitioned the Pentagon to review "a technicality in the evaluation of the Mine Resistant Ambush Protected (MRAP) All Terrain Vehicle (M-ATV) program... within a certain period of time."
- Just what it is that Navistar wants "reviewed"
- What period of time it's talking about
- And basically, any clue whatsoever about what the problem is.
Investors have gone right ahead and assumed the worst -- even if they're not quite clear on just what it might be. They sold off Navistar's stock on the "news," and began buying the stocks of rivals for the M-ATV contract -- Force Protection (Nasdaq: FRPT ) , General Dynamics (NYSE: GD ) , and Oshkosh -- in droves. (The surge erased Oshkosh's Tuesday decline, by the way.) Let's hope that will be enough to grab management's attention, and convince it to give better thought to the clarity of future press releases.
Last but not least, a report from Reuters yesterday provides us with a peek over the defense industry's horizon.
According to Reuters, the Indian government is getting ready to kick off its long-awaited competition to choose a new fighter jet. Actually, it'll choose 126 new fighters, in a contract expected to net one lucky defense contractor as much as $10 billion in sales. Tops in the running are Boeing -- which recently landed a deal to sell the subcontinent a batch of P-8I sub-hunting aircraft -- and Lockheed Martin (NYSE: LMT ) , which got its entree into the Indian market with a sale of C-130J transport aircraft a couple years back.
Don't expect to see new sales land soon. According to press reports, India could take "a full cycle of season" to put the various fighters on offer through their paces. But rest assured: We'll keep track of how this plays out, and make sure that when the time comes to buy -- you'll know what to buy.
Meanwhile, keep the Fool on your radar for all things investing, and defense investing in particular.
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