Follow the Money in Defense and Security Stocks (TSXV: AZ), (NYSE: LDOS), (NYSE: LHX), (TSX: PAT) (OTCQB: PTOTF) (TSX: CAE.TO) (NYSE: CAE)
Point Roberts, WA and Delta, BC - February 12, 2020 (Investorideas.com Newswire) Investorideas.com, a global investor news source covering security and defense stocks and its defense portal, Homelanddefensestocks.com release a sector snapshot following the money with news of recent contracts/revenues and acquisitions in defense stocks, featuring military robotics pioneer, A2Z Technologies Canada Corp. (TSXV: AZ).
Global defense spending is at a record high. According to a report looking at the 2018 numbers, "Total global spending was up for the second consecutive year, to the highest level since 1988- the first year for which consistent global data is available. And world spending is now 76% higher than the post-cold war low in 1998."
And the global growth is expected to continue.
For investors following the defense sector, the end of January saw some of the industry leaders in the US report earnings that were better than expected, with revenues easily surpassing estimates. US Aerospace and Defense ETFs also rose and benefited.
The billions of revenue realized from the industry leaders is also flowing to some of the smaller companies. A2Z Technologies Canada Corp. (TSXV: AZ), one of the top innovative technology companies in Israel, announced yesterday that the Israeli Ministry of Defense ("MOD") has awarded the Company a three-year contract for CAN $1.5 million that will be paid over the life of the contract.
Under the terms of the contract the Israeli MOD will be leasing A2Z's products and equipment for which A2Z will be responsible for maintenance for the duration of the contract. The equipment will remain the property of A2Z throughout. At the end of the contract the company will be able to determine how to best position the assets going forward. There is also significant potential for a new contract for the same services following the end of the three-year contract period.
"We are extremely pleased to have been awarded this contract and the continued strength we are seeing in our technologies and service businesses. This contract is not only a significant source of recurring revenues for the next three years but also deepens our relationship with one of our most long-standing government partners. A2Z and the Israeli MOD have been working together for decades now, and with our new innovative FTICS technology, which we believe is "the next seatbelt" to make automobiles safer than ever, we look forward to continue protecting the lives of both military and civilian populations in future decades as well," said Bentsur Joseph, CEO of A2Z.
Israel's Ministry of Defense is the governmental department responsible for Israel's security at the political, military, and civilian levels with their primary objective being to ensure the safety of Israel. The MOD also promotes research and development in security technologies and supports veterans and their families.
A2Z is also expanding its business and robotics military technology into civilian markets and announced in mid-January that they signed a contract and received its first purchase order for $175,000CDN to provide sophisticated software for integration between applications and Point of Sale (POS) for a blue chip, New York Stock Exchange listed, Fortune 500 Company, which is a leading enterprise software and services provider in the finance, retail, hospitality, telecom, and technology industries and a Fortune 500 company.
The defense sector is also seeing billion dollar deals taking place. Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE® 500 science and technology leader, announced in early February that it has entered into a definitive agreement to acquire L3Harris Technologies' (NYSE: LHX) Security Detection and Automation businesses for $1 billion in cash. The Boards of Directors of both companies unanimously approved the transaction.
News: L3Harris' Security Detection and Automation businesses provide airport and critical infrastructure screening products, automated tray return systems and other industrial automation products. With headquarters in Tewksbury, Mass. and Luton, England, the combined businesses have 1,200 employees and a global sales and services operations footprint with more than 20,000 systems deployed world-wide across more than 100 countries. The businesses serve customers in the aviation, transportation, government and critical infrastructure markets.
News: "The acquisition of these businesses will help accelerate our growth and innovation and enable us to offer the market a comprehensive security platform," said Leidos Chairman and CEO Roger Krone. "The businesses further our commitment to a diversified revenue stream, by expanding our customer penetration into 75 additional countries. This transaction is projected to be immediately accretive to revenue growth, EBITDA margins, and non-GAAP EPS upon closing."
News: Krone continued, "This powerful portfolio of technology and the outstanding team of employees that support it complement the Leidos team well. The work this team performs is vital to securing so many important locations - where passengers count on equipment reliability and efficiency to keep them safe. This mission is consistent with our company's goal of making the world safer, healthier and more efficient. Together, we will advance our strategy of helping secure some of the world's most critical infrastructure and the individuals who travel through it. I look forward to welcoming these L3Harris employees to Leidos and working together to continue our important work."
This is their second deal valued at 1Billion plus. On January 31st Leidos Holdings announced that it completed the acquisition of Dynetics, Inc., an industry-leading applied research and national security solutions company, for approximately $1.65 billion in cash. The transaction was previously announced on December 17, 2019.
On February 5, 2020, Patriot One Technologies Inc. (TSX: PAT) (OTCQB: PTOTF) (FRANKFURT: 0PL), a company offering threat detection and counter-terrorism solutions announced a significant contract for their size.
Xtract Technologies Inc., a subsidiary of Patriot One Technologies announced it had secured a $975,000CAD Contract with Canada's Department of National Defense through the Public Works and Government Services Canada Division.
News: The contract is for a project related to improving situational awareness for the Canadian Armed Forces ("CAF") and security personnel using video analytics, artificial intelligence and augmented reality. This project will continue previous work completed by Xtract.ai for the CAF to develop technology solutions to augment the situational awareness of their soldiers and address the following challenges:
- detect, recognize, and identify persons or objects of interest in a physical environment, and/or
- track identified persons and objects of interest using seamless information sharing across a decision network.
News: Work will proceed in multiple phases, including the design, development and deployment of advanced machine learning models, proprietary data sets and integration with advanced visualization hardware.
News: "We're very excited to leverage the Xtract.ai team's expertise in video analytics, object detection and artificial intelligence with the Canadian Department of National Defense," expresses Martin Cronin, CEO of Patriot One Technologies. "With the work Xtract.ai has be doing with several clients, as well as on Patriot One's PATSCAN Multi-Sensor Covert Threat Detection Platform, the team brings tremendous experience in video analytics and threat object detection and look forward to delivering a high-performing solution that we hope will augment our military personnel in their service to our country."
On February 7, 2020 CAE Inc. (TSX: CAE.TO) (NYSE: CAE) reported revenue of $923.5 million for the third quarter of fiscal 2020, compared with $816.3 million in the third quarter last year. Third quarter net income attributable to equity holders was $97.7 million ($0.37 per share) compared to $77 .6 million ($0.29 per share) last year. Net income before specific items (5) in the third quarter of fiscal 2020 was $98.0 million ($0.37 per share before specific items (6)).
Third quarter segment operating income was $154.9 million (16.8% of revenue) compared with $113.0 million (13.8% of revenue) in the third quarter of last year. Segment operating income before specific items in the third quarter of fiscal 2020 was $155.3 million (16.8% of revenue). All financial information is in Canadian dollars unless otherwise indicated.
From the news: "CAE had strong growth in the third quarter, with 13 percent higher revenue and 37 percent higher operating income, and we generated over $275 million of free cash flow. Customers continued to put their trust in CAE as their training partner of choice, awarding us $1.1 billion of orders for a $9.4 billion backlog," said Marc Parent, CAE's President and Chief Executive Officer. "Our performance was led by Civil with 42 percent operating income growth and continued good momentum with our innovative and comprehensive training solutions. In Defence, we had 32 percent operating income growth and we secured orders in excess of revenue by 1.11 times. Todd Probert recently joined CAE as its new Group President, Defence & Security and I am very pleased to welcome a leader of his calibre to our executive team. In Healthcare, we had double-digit revenue growth and we continued to bring highly innovative solutions to market to help make healthcare safer. As we look to the remainder of the fiscal year, our positive annual growth outlook for the Company remains unchanged."
The Company also pledged to become carbon neutral by summer 2020
Looking at future trends in the sector, Forecast International reports, "Despite a few dips in dollar-adjusted spending among large defense-spending nations, the overall market continues to reflect growth. Whether in Europe, the U.S., Russia or the countries of East and South Asia, the trend shows nations putting more money into resourcing their militaries and investing in future technologies and/or asymmetric capabilities."
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