The Big Decision Awaiting 3 Defense Stocks

Boeing Co (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), and Northrop Grumman Corporation (NYSE:NOC) are in the running for a multi-billion-dollar defense contract, and ahead of the announcement

by Karee Venema

Published on May 13, 2015 at 10:06 AM
Updated on Jul 10, 2020 at 8:46 AM

In the next few months, the U.S. Air Force is scheduled to award a massive defense contract that will allow one company to build 80-100 long-range strike bombers -- likely to be called the B-3 -- and to boost their bottom line by at least $50 billion. Three notable names in the running are Boeing Co (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), and Northrop Grumman Corporation (NYSE:NOC). Here's a quick look at how BA, LMT, and NOC have been performing on the charts ahead of this highly anticipated decision, and how sentiment is stacked on each aerospace and defense name.

BA had a strong start to the year, but after peaking at an all-time high of $158.83 in late February, the stock lost some steam. More recently, the shares were seen lingering near $146.20 -- a 12.5% year-to-date gain -- and staring up at newfound resistance at their 20-week moving average.

Option traders have been rolling the dice on additional losses of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BA's 50-day put/call volume ratio of 0.90 rests in the 99th annual percentile.

Echoing this is BA's Schaeffer's put/call open interest ratio (SOIR) of 1.55, which ranks just 16 percentage points from a 52-week peak. In other words, short-term traders have rarely been as put-skewed toward the stock as they are now. On the fundamental front, Boeing Co said at its annual investor day yesterday it could increase output for its 737 jetliners by as much as 43%, to 60 units per month. The upbeat outlook has the blue chip following in the footsteps of the broader Dow Jones Industrial Average today.

LMT -- which has teamed up with BA in hopes of building the B-3s -- has put in a respectable long-term performance, tacking on around 16% over the past 52 weeks. Meanwhile, although the stock stalled out after notching a record peak of $207.06 on Feb. 25, LMT appears to have found a foothold atop its rising 200-day moving average. At last check, the shares were trading at $191.64.

Similar to BA, put players have been active in LMT's options pits of late. Over the past two weeks at the ISE, CBOE, and PHLX, the stock's 10-day put/call volume ratio has jumped to 1.25 from 0.59. What's more, the current ratio arrives in the 83rd percentile of its annual range, meaning puts have been bought to open over calls at a faster-than-usual clip.

It's more of a mixed backdrop outside of the options pits. Of the 13 analysts covering the shares, three maintain a "strong buy" recommendation, versus 10 "holds" and not a single "sell." Elsewhere, Lockheed Martin Corporation's average 12-month price target of $212.60 stands at an 11% premium to current trading levels -- and resides in never-before-seen territory. Elsewhere, both LMT and NOC were handed a legal win yesterday when a federal judge threw out a lawsuit by sector peer Raytheon Company (NYSE:RTN) that sought to block the U.S. Air Force from exploring other bids for a long-range radar project.

Speaking of NOC, the stock has followed a similar technical trajectory as its fellow defense stocks. Specifically, the shares have added an impressive 28% year-over-year. After tagging an all-time peak of $172.30 on Feb. 20, NOC entered a period of consolidation, and has more recently been seen near $156 -- just north of its 10-day moving average.

In the options pits, sentiment is slightly skewed toward the skeptical side, as evidenced by NOC's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.61, which rests higher than 64% of all comparable readings taken in the past year. Even more telling is the equity's SOIR of 1.24, which stands in the 82nd percentile of its annual range -- indicating a distinct put-bias among near-term traders.

Outside of the options pits, analysts are split. Of the 12 brokerage firms covering Northrop Grumman Corporation, five maintain a "buy" or better rating, compared to seven "holds." The consensus 12-month price target of $168.92, meanwhile, represents expected upside of 8.3% to the security's present perch. Also of note, NOC will host its annual shareholders meeting one week from today, on Wednesday, May 20.


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