The Zacks Analyst Blog Highlights:Raytheon, Lockheed Martin, Northrop Grumman, Boeing and Fastenal

Sep 09, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 9, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Raytheon Company (NYSE: RTN-Free Report), Lockheed Martin Corp. (NYSE: LMT-Free Report), Northrop Grumman Corp. (NYSE: NOC-Free Report), The Boeing Co. (NYSE: BA-Free Report) and Fastenal Company (Nasdaq: FAST-Free Report).


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Here are highlights from Friday's Analyst Blog:

3 Stocks in Focus on Syrian Tension

International pressure is gradually mounting for a military strike on Syria in the wake of a chemical weapons attack in a Damascus suburb. If this happens, it would bring a much needed boost to the domestic defense and aerospace industry, which was under the constant threat of sequestration and budget cuts.

The Obama administration claims that the Syrian government fired rockets loaded with nerve gas on opposition-controlled parts of the Damascus suburbs on Aug 21, 2013. That attack reportedly killed 1,429 people, including 426 children. Against this act of terror the Obama administration is trying to marshal domestic support for a U.S. led air strike against the Bashar al-Assad regime.

The U.S. aerospace and defense stocks have lately been hit by fears of automatic budget cuts resulting from sequestration. Now that President Obama is increasingly gaining support for a military strike against Syria from both Republican and Democratic leaders, heady days may finally be back for defense stocks again. This is particularly true if ground troops are ruled out while Pentagon beefs up firearms for the proposed military air strike.

3 Players to Make Most of Syria

Given a choice of 3 defense stocks that are likely to benefit from this situation, we would suggest the following names: Raytheon Company (NYSE: RTN-Free Report), Lockheed Martin Corp. (NYSE: LMT-Free Report) and Northrop Grumman Corp. (NYSE: NOC-Free Report). All the three stocks sport a Zacks Rank #2 (Buy).

Waltham, Mass.-based Raytheon's Tomahawk cruise missile is said to be President Obama's weapon of choice. Tomahawk has become an important weapon in the U.S. defense arsenal for its precise capability to take out high value target from a very long distance. These missiles have a range of 1,000 nautical miles (1,150 statute miles) and can be launched both from surface and submarines. The latest version, Block IV, has a satellite link that enables it to hover over the battlefield as it awaits target instructions.

Meanwhile, the U.S. Department of Defense has also increased its orders on Tomahawk that could prove to be a windfall for Raytheon. The company registered a boost in net Tomahawk sales of $32 million during the second quarter 2013 on a year-over-year basis. Hence, Raytheon is expected to bolster its bottom line from the latest potential conflict. This has also pushed the company's stock price to a new 52-week high of $77.93 on Aug 26, 2013.

Given the Syrian army's 4th Armored Division, the U.S. could use fighter planes such as Lockheed Martin's Joint Air-to-Surface Standoff Missile, and the Joint Standoff Weapon made by Raytheon, besides the use of cruise missiles. While both have shorter ranges than the Tomahawks, the advantage lies in the fact that these could be launched from outside Syrian airspace.

Among other possible weapons, Northrop Grumman's B-2 bomber might also be used. Designed and manufactured by Northrop Grumman along with the assistance of yet another defense major The Boeing Co. (NYSE: BA-Free Report), this bomber is also known as the Stealth Bomber. B-2 is the flagship of the nation's long range strike arsenal and one of the world's most survivable aircraft. Northrop Grumman is the Air Force's prime contractor for the B-2. It can fly unrefueled for more than 6,000 nautical miles and over 10,000 nautical miles with just one aerial refueling. It has already proven its capabilities in many combat circumstances whether in the recent Operation Iraqi Freedom or during Operation Odyssey Dawn in Libya.

Shares of Raytheon, Lockheed Martin and Northrop Grumman are trading at an attractive 13.4x, 13.1x and 12.0x the estimate for 2013, and their share prices have gained approximately 31.6%, 37.6% and 40.4%, respectively, so far this year.

Fastenal Surges on Strong August Sales

Shares ofFastenal Company (Nasdaq: FAST-Free Report) surged around 6% on Sep 5, after it released solid sales results for the month of August. August sales recovered from a slower July and were a relief from the sluggish sales being reported by Fastenal for the past 4-5 quarters.

Fastenal's net sales rose 2.5% year over year to $297.7 million in August. Currency was a 0.3% headwind. Daily sales growth rates came in at 7.2% for the month, significantly higher than 2.9% in July and 6% in June.

Fastenal serves customers in the manufacturing and non-residential construction markets. Both the markets reported improving August sales.

Daily sales to manufacturing customers (representing almost 50% of revenues) grew 6.1%, much higher than 2.1% reported in July and also above 5.9% reported in the second quarter.

Daily sales to non-residential construction customers (representing 20% to 25% of revenues) jumped 7.3%, a significant improvement from a decline of 0.1% seen in July and a growth of 0.7% in the second quarter. Easy prior-year comparisons played a role in driving the improvement.

The company has been witnessing a consistent decline in daily sales growth rates for the past few quarters. The declining daily sales rates are due to lower sales of its fasteners product line which were being hurt by end-market slowdown and broader economic uncertainty. Moreover, the construction business has also been soft since the past two quarters.

In order to improve its top line, management announced some interesting strategies during the second-quarter conference call, held in early July. Management is deliberately slowing down focus on vending.

Management has eased pressure on stores to sign up vending machines as a vending contract takes about 5-6 months to generate revenues. Instead, stores are being encouraged to focus on improving near-term sales.

In order to accelerate sales growth, Fastenal also took the strategic decision to increase sales personnel at its stores. It plans to add 100-150 employees per month for the next six months. This strategy aims to free sales managers to focus more on selling which could drive near-term sales growth. We believe these initiatives to drive near-term sales have started to pay off as reflected in improving sales trends for the month of August.

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