Industry Week in Review – August 12, 2011

After trading ended last Friday, the United States credit rating was downgraded by Standard & Poor’s to AA+, down from its top grade of AAA. The downgrade reflected the company’s view that, “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge.” Despite Moody’s Investor Service and Fitch Ratings, the other two main credit rating agencies, deciding not to downgrade the U.S. government at this time,  equity markets saw high volatility this week, with the DJIA moving over 400 points per day until Friday when it finally closed at 11,269 down 176 points for the week.

The U.S. government, however, may not be the only entity subject to downgrades. According to a report published by Moody’s, defense contractors could see their credit ratings fall as defense budgets have been placed “at the center of the likely solution to the nation’s persistent deficits and escalating debt burden.” With cuts most likely to hit procurement and R&D accounts the hardest, profit margins for big and small defense contractors alike could be squeezed.

Notes on some big movers:

CPI Aerostructures (Down 17.5%) – Shares fell after the company revised its FY2011 guidance on Tuesday. CPI now expects FY2011 revenue and net income to be $74 million and $7.5 million, respectively. Analysts had expected the company to report revenue and net income of $80 million and $9.4 million, respectively.

Ducommun Inc. (Down 15.9%) – Shares fell this week amid the overall market turmoil following the U.S. debt downgrade. Additionally, the company’s stock itself downgraded from Buy to Hold after net income was down 153% to negative $3.0 million this quarter compared to $5.7 million the same quarter one year ago.

Computer Sciences Corporation (Down 12.7%) – Shares fell this week after disappointing fiscal first quarter results were released.  New business this quarter was $2.3 billion, down from $3.3 billion last year same quarter and operating margins fell 262 basis points to 4.5% well below the 6.0% the Street was expecting.

Notes on some relevant transactions:

Sotera Defense Solutions (“Sotera”) to acquire Software Process Technologies Inc. (“SPT”), in a deal expected to close September 2011. SPT, a provider of mission-focused, specialized software engineering capabilities that supports the cyber intelligence community, will double Sotera’s presence in the Ft. Meade area and further expand its capabilities in cyber intelligence and cyber operations.

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