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Defense Stocks Face Downgrade After Debt Deal

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HONEY, I SHRUNK THE GOVERNMENT
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A new report out from Moody's sheds some light on further unintended consequences appearing after the much-maligned debt ceiling agreement was approved.

From the Global Credit Research department:

With industry margins already under pressure and at a modest average of just 10%, increased competition for a less robust market will pressure profits further. Companies are likely to reduce payrolls and may be forced to undertake other restructuring-related activities as specific programs to be cut are identified.

Moody's warns that "big programs, particularly those behind schedule or over budget are vulnerable to quantity reductions, deferrals or in some cases, cancellation."

Specific programs named as "being exposed to potential cuts" in the report include:

  • Lockheed Martin's (Baa1, stable) $385 billion F-35 Joint Strike Fighter project
  • Textron's (Baa3, stable) partnership with Boeing (A2, negative) on the $55 billion V-22 Osprey tilt-rotor aircraft program
  • Lockheed Martin's split (with unrated Austal) $34 billion Littoral Combat Ship program

"Pressure on earnings and cash flow could eventually lead to ratings downgrades for some contractors, particularly those still dealing with substantially underfunded pension programs," says Moody's senior vice president Russell Solomon.

Pissed-off shareholders and/or Lockheed Martin/Textron/Boeing/Austal employees with large amounts of company stock in their 401(k) accounts can direct all post-downgrade airplane pilots to trail angry banners above the following address:

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.

POSITION:  No positions in stocks mentioned.
TAGS:  DEBT CEILING, DEFENSE STOCKS, MOODY'S    SOURCE:   Moody's

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