US defense stocks jump on Saudi arms deal – CBS News

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Investors hailed President Donald Trump’s visit to Saudi Arabia by boosting the share prices of major U.S. defense contractors. Their stocks advanced on Monday in the wake of announcements of arms sales to the kingdom that could be worth $109 billion over the next decade, one of the largest-ever deals of its kind. If certain conditions are met, the proceeds could be worth more than $300 billion.

Beneficiaries of the Saudi Arabian sale include Lockheed Martin (LMT), the world’s largest defense contractor, whose shares rose $4.24, or 1.6 percent, to $277.03; Boeing (BA), the No. 2 defense company, which rose $2.91, or 1.6 percent, to $183.67; and Raytheon (RTN), the largest maker of missiles and a key player in defense electronics, which edged up 91 cents, almost 1 percent, to $161.19.

Saudi Arabia imported $3 billion worth of U.S. arms last year, the most of any country. It isn’t clear, however, how much of the new deal is firm, and analysts say it’ll take years for the companies to profit from them. Some of these contracts have also been previously announced.

“I think it’s a plus,” said Cai von Rumohr, an analyst with Cowen & Co. who follows the industry. “Pretty clearly, they liked the fact that Trump seems to favor them over Iran. The odds that all of these things ultimately turn into sales downstream has to be better than it was [previously]. ….Certainly, the fact that the Saudis were willing to make those announcements was significant.”

Saudi Arabia has “expressed its intent” to purchase $28 billion worth of weapons systems from Lockheed Martin, including 150 Sikorsky helicopters, the THAAD missile defense system and four littoral combat ships (used for near-shore operations), according to the company.

The oil-rich kingdom also plans to acquire Boeing Chinook helicopters, P-8 maritime patrol and reconnaissance aircraft, guided weapon systems and 16 widebody commercial aircraft for SaudiGulf Airlines.

Raytheon, which has done business in the Middle East for more than five decades, plans to form Raytheon Arabia, a “Saudi legal entity” that will create “indigenous defense, aerospace and security capabilities in the Kingdom” in areas like cybersecurity, smart munitions and missile defense.

The Saudi Arabian deal could lead to additional sales for both Israel and the Persian Gulf countries, all of which are concerned with Iran’s aggressive foreign policy and its support for terrorist groups in the region. Israel is the largest recipient of U.S. military aid, while the Gulf countries are big spenders on weapons, reaching $33 billion last year. The latter countries also lack a significant arms industry of their own.

“This is a very large transaction,” said Loren Thompson, head of the Lexington Institute think tank who also does consulting work for the industry. “There is always a quid pro quo when we do Arab arms sales to make certain that Israel preserves its military edge. In all likelihood that means the Israelis will get a larger contribution of F-35 fighters, which are operationally superior to anything other countries in the region have.”

Other U.S. companies also announced new business from Saudi Arabia during Mr. Trump’s visit. General Electric (GE), which also has a significant defense business, announced $15 billion worth of deals in a variety of sectors including energy and health care. Exxon Mobil (XOM), the world’s largest publicly traded oil company, along with other energy companies signed $50 billion in deals with Saudia Aramco, the state-run oil company.

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