Defense contractors surge after $15.7B US arms sales to Middle East
Lockheed Martin and Boeing stand to benefit from Apache helicopter and Patriot missile packages approved for Israel and Saudi Arabia
Lockheed Martin shares rose 2 percent to $634.22 on Friday after the US State Department approved a $15.7 billion package of arms sales to Israel and Saudi Arabia, positioning the aerospace and defense sector for a potential boost in government contracts.
The State Department authorized four separate foreign military sales to Israel totaling $6.7 billion, including 30 AH-64E Apache helicopters valued at up to $3.8 billion and 3,250 Joint Light Tactical Vehicles (JLTV) with an estimated cost of $1.98 billion, according to Breaking Defense. The package also includes Namer armored personnel carrier power packs worth $740 million and an undisclosed number of light utility helicopters valued at $150 million.
Saudi Arabia received approval for a separate $9 billion sale of 730 PAC-3 Patriot missile interceptors, which would enhance the kingdom's missile defense capabilities amid rising regional tensions with Iran.
The contracts would provide a significant tailwind for Lockheed Martin and Boeing, which serve as prime contractors for the Apache helicopters. Lockheed Martin, with a market capitalization of $145.3 billion, is the principal contractor for the Patriot missile systems, while Boeing's $183.3 billion market cap makes it the larger of the two defense giants. The announcements come on the heels of an $8.6 billion F-15IA contract awarded to Boeing earlier in January.
Boeing shares were essentially flat at $233.72, having faced recent pressure from ongoing commercial aircraft challenges. The company trades at a high valuation multiple of 94.3 times earnings compared to Lockheed's 34.6 times, reflecting Boeing's higher operational risk profile as indicated by its beta of 1.16 versus Lockheed's more stable 0.25.
Analysts maintain a positive outlook on the defense sector, with Lockheed Martin carrying an analyst target price of $569.68—below its current trading level—while Boeing's target of $265.84 suggests potential upside of nearly 14 percent. The sector has drawn increased investor attention as defense budgets expand globally amid heightened geopolitical tensions.
The congressional notifications from the Defense Security Cooperation Agency mark the first step in the arms sales process rather than final agreements. Lawmakers have 30 days to block the deals, though such interventions are historically rare. The timing of the announcements may raise questions as the US military increases its posture in the Middle East for potential action against Iran, positioning both Israel and Saudi Arabia as potential targets for Iranian retaliation.
Israeli Prime Minister Benjamin Netanyahu has recently stated his intention to "taper" Israel's reliance on US military aid, though the substantial Apache and JLTV packages indicate continued American support for Israeli defense capabilities in the near term.