Industry Week in Review – March 7, 2014

President Obama released his 2015 budget on Tuesday, requesting $3.9 trillion in budget authority for the upcoming fiscal year.  Among the budget’s priorities are diplomatic security, domestic infrastructure, research and development, cybersecurity, and education and job training, in addition to a separate request for a $56 billion “Opportunity, Growth, and Security” fund designed to boost spending in areas such as research at the National Institutes of Health.  Key departments in which increased spending over 2014 is requested include the Department of Commerce (+6.0%), Department of Veterans Affairs (+3.0%), Department of Energy (+2.6%), and Department of Transportation (+2.2%).

The Department of Defense’s proposed spending and program cuts in President Obama’s 2015 budget request were in line with expectations established from Chuck Hagel’s budget preview a week prior.  The Pentagon’s proposed base budget of $495.6 billion is in compliance with spending caps imposed by the Budget Control Act and the Ryan-Murray budget deal.  Overseas Contingency Operations funding is still undecided until a final decision on troop presence in Afghanistan is made, but is expected to be around $79.5 billion.  The budget cancels and reduces several key programs and personnel including the cancelling Ground Combat Vehicle and reducing active duty military to as low as 440,000.

Big Movers

AeroVironment, Inc. (Up 15.2%) – Shares were up this week after the Company announced positive fiscal third quarter results with earnings of $0.34 per share, which was well above the consensus analyst estimates of $0.19 per share.

Federal Signal Corporation (Up 14.7%) – Shares were up this week after the Company reported strong fiscal fourth quarter results with revenue and operating income up 14% and 65%, respectively, compared to the same period last year.

Relevant Transactions

TransDigm Group Inc. acquired Elektro-Metall Export GmbH, a German provider of electromechanical actuators, electrical and electromechanical components and assemblies for commercial aircraft, helicopters and other specialty applications.  TransDigm paid $47.4 million for the acquisition.

L-3 Communications Holdings Inc. acquired Data Tactics Corporation, a provider of Big Data analytics and cloud computing solutions and services, primarily to the U.S. Department of Defense.  Terms of the deal were not disclosed.

Constellis Group Inc. acquired Strategic Social LLC, a provider of public safety technology, business consulting, and program management solutions to commercial and government customers in challenging and austere environments.  Terms of the deal were not disclosed.

Cubic Corporation acquired Intific Inc., a provider of software and game-based resources for modeling and simulation, training and education, cyberwar, and neuroscience applications.  Terms of the deal were not disclosed.

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