Sector Snap: Defense stocks fall

AP News
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Posted: Dec 09, 2009 4:38 PM

Shares of defense contractors fell Wednesday after Macquarie Securities downgraded some companies in the sector, including Lockheed Martin Corp., on concerns about tight military budgets.

Analyst Rob Stallard said defense budgets are likely to grow about 2 percent above inflation during the Obama administration, but that discretionary programs will see smaller gains because of money used for personnel and other functions. He said shares of defense contractors are likely to perform worse than the overall market next year.

Stallard lowered Lockheed Martin to "Underperform" from "Outperform," citing budgetary pressure and fears that the multi-billion-dollar joint strike fighter aircraft program is "slipping behind." He said if the fighter slips behind schedule and costs more, the Air Force and Navy might not buy as many planes.

Stallard cut Raytheon Co. to "Neutral" from "Outperform," saying that the stock's price already takes into account the company's "rich mix" of electronics and defense exports.

The analyst also lowered L-3 Communications Holdings Inc.'s rating to "Underperform" from "Neutral." He said the intelligence systems maker has a sizable exposure to defense budget limits.

Stallard upgraded Alliant Techsystems Inc. to "Outperform" from "Neutral," partly on the notion that the ammunition and defense products company could be a takeover target.

Shares of Lockheed fell $2.26, or 3 percent, to close at $75.40; L-3 dropped 96 cents to $81.18; Raytheon slipped 56 cents to $51.80; and Alliant lost 40 cents to $88.35.