AP News

Defense stocks tumble on budget-cut fears


NEW YORK (AP) — Defense stocks fell on Wednesday, as analysts predicted after the results of the presidential and congressional elections that military spending will remain tight, and there's no clear path toward avoiding automatic defense spending cuts set to kick in at the beginning of 2013.

The declines included General Dynamics, down $2.67, or 3.9 percent, to close at $66.59, and Northrop Grumman Corp., down $3.18, or 4.6 percent, to $66.70. L-3 Communications Holdings Inc. fell $3.06, or 4 percent, to $74.40, and Flir Systems Inc. fell 55 cents, or 2.8 percent, to $19.39. Raytheon lost $1.87, or 3.3 percent, to close at $55.47.

The so-called "fiscal cliff" looming at the end of 2012 includes the risk of automatic spending cuts for the Department of Defense.

Sterne Agee analysts Peter Arment and Josh W. Sullivan wrote that while there's uncertainty over those items, "there is no uncertainty as to the direction of the DoD budget after last night's re-election of President Obama. The DoD budget will remain on a path downward," especially as the Obama administration shifts its focus from the Middle East to Asia, the analysts wrote in a note before markets opened on Wednesday.

They also noted — before Wednesday's pullback — that stocks in the defense sector has risen 16 percent this year, and 3 percent in the past month alone.

Jefferies analyst Howard A. Rubel predicted a 4 percent decline in defense spending over the next year or two.

Boeing Co. is also a big defense contractor, and it announced a reshuffling of its defense unit on Wednesday. Rubel noted that Boeing's F-18 fighter program may benefit, though, because production of that aging plane is being extended while the Air Force deals with delays to more modern planes meant to replace it.

Boeing shares fell $1.47, or 2.1 percent, to close at $70.11.


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