Monday Sept 17,, Disaster Recovery Stocks Up as NY Rebuilds
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By Kristin Roberts
NEW YORK (Reuters) - Shares of defense contractors surged on Monday, led by makers of military electronics systems, as investors bet on increased defense spending after Tuesday's attack on the World Trade Center and Pentagon (news - web sites).
But aerospace companies that supply parts and systems to the commercial airline industry watched their stocks tumble on an expected financial crisis for the air carriers, analysts said.
Engineered Support Systems Inc. (Nasdaq:EASI - news), Raytheon Co. (NYSE:RTN - news) and L-3 Communications Holdings Inc. (NYSE:LLL - news) were among the market's strongest gainers on Monday, with stocks rising by more than 25 percent during the session.
Traditional names in the defense industry climbed as well. Lockheed Martin Corp. (NYSE:LMT - news) and Northrop Grumman Corp. (NYSE:NOC - news) added 15 percent to their stock prices during the day.
``The terrorist attack on America is a major watershed event likely to bolster U.S. weapons spending, buttressing already solid earnings prospects for most defense contractors,'' said Cai von Rumohr, analyst at SG Cowen.
On the commercial side of aerospace, parts and airframe suppliers sank, including shares of Boeing Co. (NYSE:BA - news), United Technologies Corp. (NYSE:UTX - news), Honeywell International Inc. (NYSE:HON - news) and Goodrich Corp. (NYSE:GR - news)
Wall Street stock analysts said demand for aircraft parts and systems will suffer as airlines cut back on flight service, swallow the cost of last week's ban on commercial air travel and adjust for an expected decline in bookings.
``Fewer flights means less consumption of their high profit spare parts,'' said Sam Pearlstein, analyst at First Union Securities.
DEFENSIVE BUYING
While shares of all defense contractors, except Boeing, shot higher, investors discriminated between makers of electronic warfare technologies and makers of traditional weapons such as fighter jets and warships.
Wall Street analysts noted military electronics companies were likely to be clear winners as the U.S. government prepared to strike back against what it has dubbed ``terrorist acts.''
The New York Stock Exchange (news - web sites)'s top gainer was L-3, which supplies secure communications and specialized products to prime contractors in the aerospace and military industry. The stock surged $24.00, or 38 percent, to $87.00.
Engineered Support Systems, whose products range from the Stryker system that assists in surveillance and engagement to the Refrigerated Ship Stores system that keeps frozen foods frozen on submarines, was among the Nasdaq's leading gainers, stock soaring $10.66, or 34 percent, to $41.71.
Alliant Techsystems Inc. (NYSE:ATK - news), a leader in munitions and precision capabilities, and CACI International Inc. (Nasdaq:CACI - news), a provider of information technology services to the U.S. government, both gained more than 20 percent to hit new highs.
Similarly, some technology companies that normally are not considered part of the defense industry posted comparable gains due to their connection with security products, analysts said.
SunGard Data Systems (NYSE:SDS - news), Comdisco Inc. (NYSE:CDO - news) and Iron Mountain Inc. (NYSE:IRM - news) along with data storage companies StorageNetworks (Nasdaq:STOR - news) and EMC Corp. (NYSE:EMC - news) rose.
``Anything that is sort of security-related or back-up related is up. That shouldn't be a surprise to anyone,'' said Andrew Jeffrey, an analyst at Robertson Stephens.
TRADITIONAL LEADERS
Raytheon, maker of strike systems and the Patriot missile, surged more than 25 percent as analysts said the company would benefit from a boost in spending on warfare technologies thanks to its strength in defense electronics. SG Cowen early on Monday upgraded its investment rating on the stock to a ''trading buy'' from a ``hold.''
Other traditional names in defense posted substantial gains as well. Shares of Northrop, maker of the B-2 bomber and Global Hawk unmanned surveillance plane, rose 16 percent, or $12.86 to $94.80, and No. 1 contractor Lockheed, maker of fighter jets, climbed 15 percent, or $5.63, at $43.95.
Leaders in the aerospace manufacturing sector dropped as investors anticipated a decrease in demand from airlines.
United Technologies warned that earnings in the fourth quarter would fall below targets due to disruptions in the commercial airline industry. That stock, a component of the blue-chip Dow Jones industrial average, plunged 28 percent, or $18.70 to $47.50.
Heico Corp. (NYSE:HEI - news), a jet engine parts maker, said it was too soon to know the effect of last week's attacks. The stock fell 13 percent, or $2.28 to $14.70.
First Union listed United Technologies and Heico along with Goodrich, Moog Inc. (AMEX:MOGA - news) and Esterline Technologies Corp. (NYSE:ESL - news) as manufacturers that may be impacted. |
