A new breed of institutional investor has helped prop defense stocks during
the past two years, but the outlook for the industry may not be as bright in
the years ahead, if the technology sector makes a comeback, said Lucy Reilly
Fitch, vice president for acquisitions and strategy at BAE Systems.
These institutional investors that have emerged on Wall Street, she said, “know
nothing about defense, but they have stayed over the last year. I think they
will leave as technology stocks start to rebound.”
Fitch noted that 58 companies have left the defense business over the last
10 years, and that the largest five defense contractors today used to be 75
companies only a decade ago. The sector, however, will remain strong, as the
government will continue to fund new programs in homeland security, transformational
technologies and precision weapons, she said.
“You can expect to see a lot smaller companies with niche capabilities,
particularly in the areas of information technology and services,” Fitch
said. “Wall Street analysts are starting to cover some of the firms they
didn’t even know about a few years ago.”
In fiscal 2002, Defense Department prime contract awards totaled $170.8 billion,
$26.2 billion more than in fiscal 2001. The top 10 defense contractors for fiscal
2002 were:
1. Lockheed Martin Corp. $17.0 Billion
2. The Boeing Co. $16.6 Billion
3. Northrop Grumman Corp. $8.7 Billion
4. Raytheon Co. $7.0 Billion
5. General Dynamics Corp. $7.0 Billion
6. United Technologies Corp. $3.6 Billion
7. Science Applications International Corp. $2.1 Billion
8. TRW Inc. $2.0 Billion
9. Health Net Inc. $1.7 Billion
10. L-3 Communications Holdings Inc. $1.7 Billion