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The writer is a long term value investor (over 10 years experience) seeking both value in long and short ideas. Besides stock positions, the writer likes to work with options to enhance the risk/return profile of the ideas.
  • Important Contract Announcements Of Last Week - Part II 0 comments
    Jul 16, 2012 9:59 PM | about stocks: APC, BA, BRS, BWXT, HRS, LLL, NE, PAY, STRL, UAL, UTX

    Many businesses sell their products and services gradually during the year to a wide range of customers. Some businesses and industries are highly reliant on individual contracts placed by large corporate or government customers. Especially companies operating in project management, the energy business, the aviation business or defense business often announce large one-time contract awards which can significantly move their share prices.

    The following are the most important contract announcements for the week of July 9th till July 13nd.

    Boeing (BA) the aerospace company producing commercial airplanes and defense systems announced that it received a $14.7 billion order from United Continental Holdings (UAL) for 150 narrow-body 737 aircrafts. Deliveries will be made between 2013 and 2022. The 737 MAX 9 version will achieve fuel emission reductions of an estimated 13% compared to the current version. The order was announced at the UK Farnborough air show last week. Typically the headline figure overestimates the actual value of the order as airliners get discounts compared to catalogue prices. The order which stretches over a 10-year period compares to Boeing's 2011 annual revenues of almost $69 billion. Shares of Boeing ended the week flat.

    Noble Corporation (NE) the offshore drilling contractor for the oil and gas industry announced that it signed a drilling contract with Anadarko Petroleum Corporation (APC) for a new ultra-deepwater drillship. The drillship is currently under construction in South Korea and is expected to be operational by 2013 when it will be used in the Gulf of Mexico. The three year deal is likely to generate $677 million in revenues and includes provisions for higher operating costs. The three year deal represents roughly a quarter of Noble's annual revenues of $2.7 billion. Investors react positively on the news of the announcement, sending shares 4% higher which marks year to date returns of 14%.

    Babcock & Wilcox (BWC) the technology innovator in power generation systems announced that its subsidiary Babcock & Wilcox Nuclear Operations Group received three US Naval Reactors contracts totaling approximately $73 million. Babcock will provide "technology development and nuclear manufacturing in support of US Navy training operations and other naval nuclear-related programs." The program represents roughly 2.5% of the company's 2011 annual revenues of $2.9 billion. Despite the nice contract, shares of Babcock fell 2% over the last week, marking year to date returns of 3%.

    United Technologies (UTX) the provider of high technology products for building systems and aerospace industries announced that its subsidiary Sikorsky Aircraft received a new five year contract from the US army. The new contract valued at $8.5 billion provides the baseline for 653 Black Hawk and Seahawk helicopters through December 2017. Under the contract the government has an option to order 263 more aircraft, which could possibly expand the order value to $11.7 billion. The five year contract represents roughly 15% of United Technologies 2011 annual revenues of $58.2 billion. Shares of United Technologies hardly reacted on the news, trading flat so far in 2012.

    Sterling Construction (STRL) the heavy civil construction company announced that the company was awarded the US 380 Project with a bid of $39 million. The company will start working on the project on March 2013 and it will construct five bridges for the project in the coming 36 months. The project represents roughly 8% of Sterling Construction's 2011 annual revenues of $501 million. Investors were modestly enthusiastic about the announcement of the project sending shares 2% higher over the week.

    Harris Corporation (HRS) the international communications and information technology company focused on governmental customers announced that it has been selected by the Department of State Bureau of Consular Affair's Development to work on its IT-systems. The one-year contract which includes four one-year options has a total ceiling value of $750 million. Harris will provide, maintain and modernize the IT of the Department. The contract represents roughly 13% of Harris' 2011 annual revenues. Shares in Harris fell 3% this week despite the sizable contract announcement, marking year to date gains of 13%.

    VeriFone Systems (PAY) the provider of electronic payment solutions announced that it was awarded a five year contract to place payment systems in Washington D.C. cabs. The five year contract is worth between $35 and $45 million and will provide GPS location services and automated trip reporting on little tablets within 6,500 cabs. The contract represents roughly 3% of Verifone's 2011s annual revenues of $1.3 billion. Shares of VeriFone ended the week 12% higher on the back of the modest size contract.

    Bristow Group (BRS) the provider of helicopter services to the offshore energy industry announced that it has secured a new $2 billion contract with Norway. Under the multi-year contract it will supply S-92 and EC225 helicopters which will support Norway's growing oil production in the North Sea. The multi-year contract approximates one and a halve times Bristow's annual revenues of $1.3 billion and send shares more than 5% higher over the last week. Year to date shares in Bristow have fallen 8% after the company was forced to lower its full year earnings guidance.

    Level-3 (LLL) a prime contractor in command, control, communication and intelligence systems announced that the company was awarded a contract by the US Special Operations Command. Under the five-year $500 million contract, Level-3 will "provide tactically deployed Special Operations Forces (SOF) users with worldwide communications connectivity." The value of the five year contract represent roughly 3.3% of Level-3's annual revenue of $15.2 billion. Shares of Level-3 ended the week roughly flat, trading up 8% so far this year.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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