The GovCon Index snapped its six-day losing streak Thursday, then advanced +0.28% to $4,895.06 before the weekend. Unfortunately, the two consecutive daily gains did not offset the three losses to start the week, including the sharp -2.77% drop on Tuesday. The index, which tracks the stock performances of 30 major government contractors, lost -2.42% for the week and notched a second straight weekly loss. Year-to-date, GCI is up +1.18%.
Wall Street went haywire Monday as Chinese startup DeepSeek disrupted the market with cost-efficient AI models. On Wednesday, the top three benchmarks declined after the U.S. Federal Reserve stalled its rate-cutting cycle. Nonetheless, the Dow Jones Industrial Average (+4.7%), S&P 500 (+2.7%), and Nasdaq Composite (+1.64%) posted month-on-month gains.
Defense Earnings and Ratings
Defense stocks nosedived Tuesday due to the impending reforms in government contracting. Prime defense contractors presented their latest quarterly results, and market analysts adjusted their ratings.
Lockheed Martin (NYSE: LMT) reported a drop in net earnings in Q4 2024 compared to Q4 2023. Morgan Stanley (NYSE: MS) reduced its price target from $555.00 to $525.00 and set an “equal weight” rating. LMT trades at $462.95.
RTX (NYSE: RTX) hit an all-time of $132.43 in intra-day trading on Tuesday after its full-year 2024 results showed a 49% year-over-year increase in net income to $4.77 billion. The total backlog at the end of the fourth quarter reached $218 billion. RBC (NYSE: RY) Capital Markets retained its âoutperformâ rating for RTX and raised its price target to $150 from $140. The current share price is $128.95.
Northrop Grumman (NYSE: NOC) lost nearly 2% during the week, despite reporting a $1.26 billion net earnings in Q4 2024 versus the $535 million net loss in Q3 2023. A new record is the total backlog of approximately $91.5 billion. Wells Fargo (NYSE: WFC) lowered its price target from $595 to $574 and kept an âoverweightâ rating but remains bullish. The bank said budget clarity is the stockâs catalyst. NOC trades at $487.27 per share.
General Dynamics (NYSE: GD) declined -3.55% in five days, notwithstanding a solid fourth quarter and revenue and earnings growth in 2024. The backlog at year-end is $90.6 billion, but the sum of all backlog components, including the unfunded indefinite delivery, indefinite quantity contracts and unexercised options, is $144.4 billion. However, because of a lower margin outlook, Berstein Research reduced its price target from $298 to $290 on a âmarket performâ rating. You can purchase GD today at $256.98.
According to Christopher Kubasik, chairman and CEO of L3Harris Technologies (NYSE: LHX), 2024 was a year of significant accomplishments as the company delivered on its financial commitments and achieved a record $34 billion backlog. Market analystsâ average 12-month price target is $264.20, a +24.6% upside from the current share price of $212.01.
Rate Cut Pause
On Wednesday, the Federal Open Market Committee members voted to keep interest rates unchanged at 4.25%-4.5%. Fed chairman Jerome Powell said the inflation target is still 2%, but policymakers need to see real progress on inflation or some weakness in the labor market before considering adjustments.
The implementation of additional tariffs on Mexico, Canada and China and retaliatory tariffs by the three countries could be massive market headwinds this month.