Found this mention of EASI:
SMALL-CAPS IN DEFENSE ROCKET
By CAROLYN SARGENT
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April 6, 2003 --
The Iraq war didn't launch the emotional rally in defense stocks many investors were expecting. Or did it?
Large-cap defense contractors, including Northrop Grumman Corp. and Lockheed Martin Corp., haven't even kept up with the broad market's 5 percent rise since early March, when it became clear the U.S. and Britain were likely to go to war with Iraq. Raytheon Co. has traded roughly in line, but Boeing Co. and General Dynamics Corp. have actually lost ground.
Meanwhile, small-cap defense companies are on a roll.
DRS Technologies and Herley Industries have risen 18 percent or more since March 3. FLIR Systems and Alliant Techsystems are also up strongly, along with Engineered Support Systems <EASI>.
So why have small-cap defense stocks outperformed the major names? Largely because they are less distracted, analysts said.
Over the past year, the major contractors have had higher-than-expected pension expenses, partly because of pension fund losses in the stock market.
"Even though this is a non-cash expense, a lot of companies have recently lowered earnings expectations," said Tim Quillin, a defense analyst at Stephens Inc. In addition, Boeing, General Dynamics and Raytheon have exposure to the troubled commercial aircraft industry, whereas the small-cap companies are solely defense-oriented.
Added Quillin: "These two issues alone have overwhelmed the positive industry fundamentals."
And the fundamentals, analysts said, have been good. Last spring, defense stocks rallied on the creation of the Department of Homeland Security and a 13 percent increase in that year's defense procurement and research and development budget.
But worries about the rising U.S. budget deficit and pension liabilities began to weigh down share prices last summer.
Large-cap companies fell, but the more volatile small-cap defense companies fell further. Some, like DRS, lost more than 50 percent.
Looking ahead, analysts said, small caps could get a bigger boost than large-caps from the nearly $79 billion appropriations package passed by Congress on Thursday to pay for the Iraq war.
Of that spending, $3.7 billion is earmarked for munitions replenishment and $1.1 billion for equipment procurement and R&D.
Small-cap companies tend to benefit more from surplus war spending because they typically produce more replenishable goods.
Steve Wortman, an analyst at small-cap research shop Sidoti & Co., sees the potential for 15 to 20 percent gains on average for small-cap defense stocks....
Fred |
