Boeing sinks as defense stocks surge
By August Cole & Russ Britt, CBS.MarketWatch.com
4:23 PM ET Sept. 17, 2001
NEW YORK (CBS.MW) - Commercial airline and defense giant Boeing sank more than 16 percent Monday in the first day of U.S. trading since terrorists destroyed the World Trade Center towers and damaged the Pentagon.
Meanwhile, aerospace and defense stocks soared on speculation the Pentagon would reinvigorate the industry with a number of new contracts.
Many analysts and policy makers expect more money for key defense programs like a national missile defense system as well as offensive systems like missile and bomber programs.
In the background, the Federal Reserve slashed the Fed funds rate to 3 percent, down 50 basis points.
Analyst Nick Fothergill at Banc of America Securities wrote in a note to clients that the defense sector's near-term rise is driven by "sentiment" and that fundamentals may improve down the road as well.
"We believe there is a good chance of a return to the average 15.7 times price to earnings multiple that the defense group traded on in 1998 prior to the profit warnings in late 1998/99," he wrote.
Boeing (BA) is also the world's No. 1 aerospace company. But its status as a massive commercial aircraft maker caused it to lose $7.66 to $35.80. The Dow component was trading at 50 percent of its 52-week high. There are fears aircraft orders will be down as travel slows in the wake of the attacks.
But shares of defense contractors seemed to gain more than what Boeing lost. Some surged by a third before settling back.
L3 Communications Holdings Inc. (LLL) made the biggest jump of all, skyrocketing up $24 to $87, a whopping 38.1 percent gain.
Lockheed Martin (LMT), Boeing's key rival in defense, surged $5.63 to $43.95, an 14.7 percent gain .
Alliance Techsystems (ATK), a diversified defense company with operations ranging from ammunition to rockets, soared more than any, rising $13.41 to $78.70, a 20.5 percent gain. The company skyrocketed by as much as 33 percent early in the session.
General Dynamics (GD) was up $6.93 to $82.90, a 9.1 percent gain. The company also reported receiving a $390 million contract for a communications system for Taiwan.
Northrop Grumman (NOC) shares climbed $12.86 to $94.80, a 15.7 percent rise. Raytheon Corp. (RTN), also surged $6.65 to $31.50, a 26.8 percent gain. ITT (ITT) was down $1.20 to $43.11.
Though Prudential Securities' Washington analyst Charles Gabriel noted "everything has changed" for the defense sector, analysts were clear to point out that comparisons with the Gulf War were not apt because of the finite nature of the campaign.
The Bush administration, however, this time has given every indication of a prolonged effort by U.S. forces and agencies to search out and destroy terrorist networks around the world. Importantly, it looks it will receive funding and Congressional approval for such an effort.
Prudential forecasts annual increases in defense spending of $20 billion to $30 billion, up to $400 billion by fiscal year 2004 or 2005.
August Cole is spot news editor at CBS.MarketWatch.com in Chicago
Russ Britt is a Los Angeles-based reporter for CBS.MarketWatch.com.