The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.
DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Lately, however, the generals have been focusing primarily on belt-tightening -- and last week was no exception, with the Pentagon awarded just a bit more than $1.5 billion in new contracts. Among them ...
The Pentagon's contracting week started off slow on Monday, with a near-record low $49 million in contracts being awarded. Probably the most interesting of these, though, was the $7 million award issued to ERAPSCO, a joint venture between Britain's Undersea Sensor Systems and America's Sparton (NYSE: SPA), to buy 9,400 AN/SSQ-53F Sonobuoys.
Deployed from aerial subhunters such as Sikorsky's Seahawk and the new Boeing (NYSE:BA) P-8A Poseidon, these sonobuoys are used to "ping" enemy submarines with sonar signals, helping to track down underwater bad guys.
Oshkosh keeps on truckin'
Seven million dollars barely registers on the Pentagon spending scale, of course. But Wisconsin-based Oshkosh (NYSE:OSK) won a somewhat larger contract later in the week. Tacking on $77 million to a circa-2009 contract to build "family of medium tactical vehicles" trucks, or FMTVs, for the Army, Oshkosh's contract win now surpasses $4.7 billion in total value and still has more than a year left to run.
Designed to use a common chassis, the FMTV platform can be tweaked to churn out multiple types of "trucks" needed by the Army, from materiel handlers to tractors, vans, to wrecking trucks to dump trucks. And Oshkosh gets to build all of 'em.
Look! Up in the sky! Is it a plane? (Then shoot it down.)
Meanwhile, Raytheon (NYSE:RTN) was keeping itself busy notching multiple contract wins for its new SM-3 Block IB missile. On Tuesday, Raytheon won a pair of follow-on contracts for the SM-3IB, when the U.S. Missile Defense Agency exercised options to buy or new SM-3IBs for delivery in 2015, and fund the purchase of parts necessary to build 29 more SM-3IBs subsequently. In total, two contracts will be worth more than $268 million to Raytheon.
Incidentally, the first of these contracts appears to restore funding for four missiles -- funding had been cut from Raytheon's contract just one month ago.
The SM-3IB is a next-generation improvement on Raytheon's Standard surface-to-air missile, giving the missile enhanced, two-color infrared target seeking capability, plus the ability to use short bursts of precision propulsion to steer the missile toward incoming targets.
Opportunities on the horizon
So much for the contracts that everyone heard about last week. Now let's move on to the subject of contracts that may not yet be incorporated into defense contractor stock prices. Two of these appeared on the horizon last week, when, in twin notifications to Congress, the U.S. Defense Security Cooperation Agency unveiled plans to sell the government of Iraq more than $2.7 billion in arms. Specifically, coincidentally, one of these contracts may also go to Raytheon -- a $339 million deal to sell mobile troposcatter radio systems and mobile microwave radio systems to the Iraqi military.
A second contract, both larger and more wide-ranging, proposes to sell the Iraqi military and integrated air defense system consisting of hundreds of Stinger and Hawk surface-to-air missiles, firing units to launch them, and radar and communications gear to tell them where to go. This contract holds the potential to deliver hundreds of millions of dollars of revenue to contractors including Boeing, Raytheon, Lockheed Martin, Northrop Grumman, and others.
It hasn't been officially announced yet, and most investors aren't factoring it into their valuations. No one knows about it -- except that now, you do.
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