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August 25 Market Close: GovCon Index Down on McKesson Plunge Despite L-3 Upgrade & Bullish JPMorgan Defense Stock Forecast

GovConIndexDOWNExecutive Mosaic’s GovCon Index stumbled to negative late afternoon Thursday on a plunge in McKesson Corp. (NYSE: MCK) with other health stock declines despite an upgrade to L-3 Communications (NYSE: LLL) by JPMorgan and gains by other defense primes and government services providers.

GovCon Index gainers outnumbered laggers by roughly 2-to-1 ratio and eight of the GCI’s 11 S&P 500-listed companies advanced with L-3 the top net gainer and McKesson the largest net and percentage lagger for stocks included in both indices.

Pharmaceutical supply services company McKesson had 2.37 million shares traded to nearly double the three-month average volume as the S&P sector fell more than 1 percent on continued controversy over Mylan’s move to raise the price of its Epipen allergy medication.

L-3 is now JPMorgan’s new top pick in the defense sector as the firm lifted the New York City-based defense contractor to “Overweight” from “Neutral” with a higher price target of $182 from $158 in a research note to investors.

JPMorgan analyst Seth Seifman told investors he expects L-3 to generate 5-percent compound annual growth in free cash flow through 2020 to become the second-highest level of defense stocks covered by the financial services firm.

L-3 should also see 2-percent annual organic growth and achieve at least one additional percentage point of margin through 2018, Seifman said.

Seifman also downgraded Northrop Grumman‘s (NYSE: NOC) stock from “Overweight” to “Neutral” on cash return yield he believes as no longer exceptional but also raised the price target from $225 to $231.

Seifman remains upbeat on defense and expects the average defense stock to gain 10 percent over the next 16 months as that sector is attractive to investors with companies that have “robust, visible cash flows and… commitment to returning that cash.”

ManTech International (Nasdaq: MANT) and Science Applications International Corp. (NYSE: SAIC) hit 52-week highs during intraday trade Thursday.

The S&P 500 has closed at a gain or loss of less than 1 percent for 33 straight days with Thursday the final trading day before Federal Reserve Chair Janet Yellen speaks Friday morning in Jackson Hole, Wyoming.

Market Summary

Index Value Net Change % Change
GovCon Index 81.564 -0.039 -0.048%
S&P 500 2, 172.47 -2.97 -0.14%
Dow Jones Industrial Average 18, 448.81 -33.07 -0.18%
NASDAQ 5, 212.20 -5.49 -0.11%
Advancing GovCon Index Issues 22
Declining GovCon Index Issues 7
Unchanged GovCon Index Issues 1

Lowest GovCon Index Net Performers

Symbol Company $ Current Price Net Change ▾ % Change
MCK McKesson Corp. * 183.30 -5.75 -3.04%
OA Orbital ATK 75.20 -0.85 -1.12%
COL Rockwell Collins 84.43 -0.37 -0.44%
LDOS Leidos Holdings 39.70 -0.32 -0.80%
BA Boeing * 132.98 -0.31 -0.23%

Lowest GovCon Index Percentage Performers

Symbol Company $ Current Price Net Change % Change ▾
MCK McKesson Corp. * 183.30 -5.75 -3.04%
OA Orbital ATK 75.20 -0.85 -1.12%
LDOS Leidos Holdings 39.70 -0.32 -0.80%
BAESY BAE Systems 27.82 -0.18 -0.64%
COL Rockwell Collins 84.43 -0.37 -0.44%

Top GovCon Index Net Gainers

Symbol Company $ Current Price Net Change ▴ % Change
LLL L-3 Communications * 148.38 +1.60 +1.09%
CACI CACI International 98.56 +1.07 +1.10%
RTN Raytheon * 141.78 +0.71 +0.50%
ICFI ICF International 41.85 +0.42 +1.01%
LMT Lockheed Martin * 248.53 +0.41 +0.17%

Top GovCon Index Percentage Gainers

Symbol Company $ Current Price Net Change % Change ▴
I Intelsat 3.10 +0.21 +7.27%
CACI CACI International 98.56 +1.07 +1.10%
LLL L-3 Communications * 148.38 +1.60 +1.09%
ICFI ICF International 41.85 +0.42 +1.01%
VEC Vectrus 33.00 +0.29 +0.89%

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