The Obama administration's new military spending plan is good news for defense-aerospace giant Lockheed Martin, but bad news for combat truck and submarine builders, defense and Wall Street analysts say.
The $525 billion Defense Department budget plan features some weapon program terminations and changes. Analysts say Lockheed fared the best, while General Dynamics took a hit.
Pentagon officials made only minor changes to the F-35 fighter program, keeping intact plans to buy more than 2,400 models. That move gives a major boost to Lockheed, analysts said.
"Lockheed Martin appears to be the biggest winner in the Pentagon's new spending priorities, despite a slowing in the rate at which its signature F-35 fighter programs will ramp up," said Loren Thompson of the Lexington Institute. "The Pentagon has confirmed its plan to buy all 2,443 F-35s … rather than slashing production goals or eliminating one of the three variants."
That is one reason Wall Street, which has grown leery of defense firms as annual spending has shrunk, continues to judge Lockheed's stock with high marks. Morgan Stanley issued a white paper this week after the Pentagon's Monday budget rollout that concluded Lockheed stock "is expected to be in line" with the financial firm's projections over the next year.
There are other reasons Wall Street is looking kindly upon Lockheed. The Pentagon's budget endorses the Navy's Littoral Combat Ship program and "fully funds every satellite program Lockheed is building," Thompson said. The spending plan also provides classified "funding for a new constellation of spy satellites that the company was awarded a contract for last fall," Thompson said.
Another winner in the budget plan is Raytheon.
Morgan Stanley is projecting Raytheon's stock will perform "in line" with projections. The firm "suffered only minimal damage" in the 2013 Pentagon budget, largely because it has positioned itself well through its electronics business, Thompson said. As the military relies more and more on upgrading existing platforms, Raytheon will be in line to do that work.
Among the losers were the makers of some Navy ships, like General Dynamics, which makes nuclear-capable submarines. Jim McAleese, who runs a defense consultancy based near Washington, ranked GD at the bottom of his winners-and-losers lists.
Other losers were heavy truck makers like Oshkosh, analysts said.
"Army ground [vehicle] programs were hit particularly hard," McAleese said. The Army canceled an effort to upgrade its Humvee fleet, and cut hundreds of millions from a number of wheeled and tracked combat vehicle programs.
"Oshkosh bet the farm on Army programs, but it is finding the Army is having a very difficult time following through on any of its plans," Thompson said.
McAleese, in a briefing for Wall Street, noted the Army's decision to fully fund its Joint Light Tactical Vehicle program is the "lone bright spot" in the spending plan for combat truck manufacturers.
But the list of companies mulling a bid for that multimillion-dollar tender have yet to formally declare whether they will even compete.
"Because the Army," Thompson said, "simply has an awful track record on its procurement plans."