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Analyst: budget talks to pressure defense stocks

February 15, 2013

NEW YORK (AP) — A Citi analyst said Friday that he thinks it’s unlikely that Congress will begin budget talks in earnest before automatic spending cuts take effect on March 1, pressuring shares of defense contractors until a deal is finally reached.

Jason Gursky said that only after the cuts, known in Washington as sequester, kick in will there be the potential for a deal that would undo at least some of them. If left unchanged, the cuts would drain $85 billion from the government’s budget over the coming seven months, imposing cuts of at least 8 percent on the Pentagon.

Gursky said he thinks it will be at least four to eight weeks before the dust begins to settle, so in the meantime he’s looking for buying opportunities as the news surrounding the sequester weighs on stock prices.

The analyst said he recently met with executives at Lockheed Martin Corp., Boeing Co., Northrop Grumman Corp., General Dynamics Corp., CACI International Inc., and Booz Allen Hamilton Holding Corp. In general, companies are trying to prepare for a variety of scenarios and are ready to adjust their businesses in response to any budget cuts, he said.

He added that short-cycle and service-oriented businesses are already being effected as the Pentagon starts to reduce spending, while longer-cycle hardware providers have yet to feel the pinch for the most part.

In midday trading, Lockheed Martin shares rose 40 cents to $87.48; Boeing rose 8 cents to $75.01; Northrop Grumman fell 26 cents to $65.54; Raytheon Co. lost 10 cents to $53.66; General Dynamics lost 11 cents to $66.11; CACI rose 22 cents to $52.97 and Booz Allen Hamilton Holding Corp. rose 4 cents to $12.80.

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