The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most “open” of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it’s issued, to whom, and for how much — all right out in the open on its website.
So what has the Pentagon been up to this week?
DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Last week, though, the generals maxed out their credit cards with abandon, awarding closer to $8.5 billion in new contracts — and expanding the scope of a massive $7 billion alternative energy production contractto boot.
Solar farm at Furnace Creek Ranch, Death Valley, Calif. Source: Wikimedia Commons.
Green energy
The big news of the past week was that the scope of the Pentagon’s recent purchases of green energy has finally been made clear. Over the past month, the Pentagon announced a pair of apparently independent, $7 billion-each Power Purchase Agreements to diversify the military’s energy supply into solar and wind power. Early last week, though, the Pentagon added a third category of alt-energy to its shopping list — geothermal — and clarified that “all awarded technologies will share a total estimated value of $7,000,000,000.”
Why is this important? Well for one thing, because it makes clear that all of the companies named in these three alt-energy contracts will be competing against each other for the $7 billion pot of prize money. This will tend to favor major power players Siemens and Dominion Resources, Inc. (NYSE:D), the only two companies that were named “winners” in at least two of the three awards for green-power production. While any of the 40 separate companies named can win task orders under the contracts in theory, these two have twice the chances of their rivals to win in practice.
Tank commander
Another big winner in this week’s defense contracting contest is General Dynamics Corporation (NYSE:GD). On Wednesday, General D nabbed a monster $188 million contract to upgrade Abrams main battle tanks for the Saudi Arabian Army. The “foreign military sales contract” was awarded to General Dynamics without competition from other bidders, and will give the company plenty of work, as it converts 84 M1A1 and M1A2 tanks to the Saudis’ preferred “M1A2S” configuration.
Bomb buster
Nearly as big was the $180 million contact that defense contractor SAIC, Inc. (NYSE:SAI) won, to help defeat the threat of roadside bombs in Afghanistan. SAIC has been hired to help the U.S. Army improve the effectiveness of its “Saturn Arch” anti-improvised explosive device initiative, which uses aircraft and drone-based sensors to track the deployment and installation of IEDs throughout the Afghan theater, with the aim of neutralizing the threat.
Missile defense
Meanwhile, the week’s largest new contract award deals with threats from above, rather than below. This one went to the nation’s largest pure-play defense contractor, Lockheed Martin Corporation (NYSE:LMT), which will be paid $3.92 billion — that’s right, with a “b” — to sell Terminal High Altitude Area Defense, or THAAD, Interceptor missiles and related equipment to the U.S. military, and also to the Persian Gulf nation of the United Arab Emirates, which is looking to shore up its defenses from missile-armed rogue regimes in the neighborhood.
While of limited use in defeating long-range intercontinental ballistic missiles, THAAD missiles are designed to provide theaterwide defense against short-, medium-, and intermediate-range ballistic missiles such as Scuds. The U.S. intends to buy 110 THAAD Interceptor missiles from Lockheed. UAE wants 192 more.
THAAD launch. Source: Wikimedia Commons.
Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let’s move on to one contract that may not yet be incorporated into defense contractors’ stock prices.
On Thursday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to sell upgraded avionics to the north African nation of Tunisia. The new equipment will “improve Tunisia’s capability to deter regional threats and strengthen its homeland defense” by modernizing its fleet of F-5E/F Tiger II fighter aircraft. These planes were originally build by Northrop Grumman Corporation (NYSE:NOC), and DSCA says Northrop will be the primary contractor on the work if Congress approves this $60 million arms sale.
Most investors aren’t factoring the extra revenues into their valuations for Northrop, because no one knows about the contract yet — except that now, you do.
The article Defense News Roundup: Saudi Tanks, UAE Rockets, and Fighters for Tunisia originally appeared on Fool.com and is written by Rich Smith.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman.
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