KippsDeSanto & Co. Industry Week in Review – October 26, 2018

Summary

Several aerospace and defense and government technology solutions companies announced positive earnings this week. Healthy global air travel and rising military budgets were cited as primary drivers behind the strong earnings reports. Moreover, the U.S Department of Justice continues to prioritize cybersecurity and has formally charged a Russian national in connection with fabricating disinformation throughout the 2016 election.

Aerospace & Defense Update

Numerous aerospace and defense companies announced positive 3Q18 earnings this past week.  Boeing beat earnings per share (“EPS”) estimates by $0.11 (3.2%) and revenue estimates by $1 billion, reporting $25.1 billion of total revenue for 3Q18, reflecting more efficient commercial aircraft production and robust defense business growth highlighted by several major contract awards.  Moreover, Lockheed Martin beat EPS estimates by $0.83 (19.3%) and increased year-over-year revenue 16% to $14.2 billion.  Lockheed’s strong revenue and earnings growth was led by its Aeronautics business unit, which continues to benefit from increased production of its F-35 combat jet program.  Raytheon’s earnings also beat EPS estimates by $0.24 (11.9%) and grew revenue by 8.3% YoY to $6.81 billion, driven by 7% sales growth in its missile systems business unit and 13% sales growth in its intelligence, information and services business units.

StandardAero Aviation Holdings, Inc., a portfolio company of Veritas Capital, is exploring a potential sale that could be worth over $5 billion. StandardAero has a global presence and is one of the largest maintenance, repair, and overhaul providers for Boeing and Airbus’ aircrafts, engines, business jets, and helicopters. Favorable macroeconomic trends including robust global air travel, a proliferating military budget, and the Pentagon’s renewed focus on maintenance and upgrades make StandardAero a desirable acquisition target for a variety of strategic and private equity suitors.

Government Technology Solutions

As it continues its initiative on cracking down on foreign cyber threats, the Department of Justice (“DOJ”) officially charged a Russian national this past week in connection with a disinformation campaign in the wake of the 2016 election. The specifics behind the alleged cybercrime involved funding the creation of fake and politically-contentious information in an effort to stir up political unrest. This public indictment of a foreign national provides one of the first concrete examples of enforcing the U.S. government’s new National Cyber Strategy. The policy, released in September, specified a shift in approach whereby the U.S. would publicly condemn nation states for their involvement in cyberattacks. This year has already seen the DOJ responding to cybercrimes more publicly, including the indictment of nine Iranians for stealing several universities’ data in March, twelve Russians for the Democratic National Committee (”DNC”) hack in July, a North Korean programmer who was involved in some of the biggest cyber-attacks in recent years, and seven Russian military officers earlier this month for the attacks against the World Anti-Doping Agency (“WADA”). As cybercrime is becoming an increasingly popular political weapon for international states, the DOJ intends to respond accordingly publicly condemn and indict foreign cyber criminals, in an attempt to curtail the behavior and lead the way for other Western governments to do the same.

Big Movers

Bombardier (down 15.1%) – Share prices were down this week after Mitsubishi pushed back against claims Bombardier made in a lawsuit that Mitsubishi hired Bombardier engineers and stole trade secrets to expedite production.

General Dynamics (down 10.7%) – Share prices were down this week after the company announced revenue below expectations. Total revenue rose 20% to $9.09 billion but fell short of the $9.38 billion estimated.

Transactions

Applied Insight acquires Organizational Strategies Inc., a provider of analytics, IT and intelligence, surveillance and reconnaissance (“ISR”). Terms of the deal were not disclosed.

Directional Aviation has agreed to acquired SimCom International, Inc., a provider of initial and recurrent pilot training for jet, turboprop, and piston aircrafts using FAA-qualified flight training device and full-motion simulators. Terms of the deal were not disclosed.  

QinetiQ Group, plc. has acquired Inzpire Group, Ltd., a provider of operation training and mission systems for military customers in the UK and internationally. The deal is worth an estimated $30.5 million.

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