May 13, 2007: Aero defense tidbits

Picture: US MRAP vehicle


Here are some up to date observations on the Aero defense sector.

BAE has acquired Armor Holdings at $88/share

The DOD'S MRAP requirements have risen to over 13,250 vehicles due to US Army increasing its need to over 8,000 vehicles.

Upcoming contracts next week are USAF ETASS, US Air $5b aircraft order,USAF A-10 wing replacement, Joint Cargo Aircraft (JCA) and the Navy Multiband Terminal.

Force Protection (FRPT) is now rumored to be a potential takeover target. Valuation is tough to estimate, but I suspect it might be sold at a premium of about $35.00/share if a suitor is serious. I now do a mea culpa on this stock. My analysis was correct, but our presence in Iraq was not anticipated by me to last beyond July. Bush wins. Dems loose. I am happy to be wrong for two reasons. Bush is correct, and the FRPT shareholders are big winners.

NOC lost the Lawrence Livermore management contract ($6.8b over seven years). A Cal/Bechtel team won it.As a consolation prize, NOC won a US State Department contract for $200m over five years for a program entitled the Global Peace Initiative (GPOI). I want to see THAT brilliant scheme from our grade D- Department of State lifers accomplish something.

SPR won a seven year helicopter component contract from Sikorsky worth about $175m.

Italy is buying fifty Airbus 350s at a steep discount to cost production. You get what you pay for.

Hellenic Air Force selected GR air reconaissance system for F-16s. Goodrich is doing very, very well.

Boeing (BA) revealed it received 48 unidentified orders for 737s.

Recommended stocks at this time:

BE Aerospace (BEAV)
Goodrich (GR)
Precision Castparts (PCP)
TransDigm (TDG)
Boeing (BA)
Esterline Tech (ESL)
Dyncorp (DYN)
EDO Corporation (EDO)
General Dynamics (GD)
L-3 Communications (LLL)
Raytheon (RTN)

A few of these are approaching full value, but I am confident that all listed have upside - not a bad thing in this richly priced market.