Defense industry stock by stock

Defense: Stock by stock

October 19, 2001: 5:56 p.m. ET

The Pentagon is set to spend $350 billion .Here's where the money is going.
By David Futrelle and Nick Pachetti, with Pablo Galarza

NEW YORK (CNNmoney) - The Pentagon will spend an estimated $345 billion this fiscal year -- and more, under some wartime scenarios. These five companies will get a big share of it all.

NORTHROP GRUMMAN It's a huge supplier of radar equipment for the Air Force's spanking-new F-22 Raptor fighter jet as well as the F-16 (see Lockheed, at right). In fact, radar and other high-tech electronics accounted for 38% of Northrop's $7.6 billion in revenues last year. But the buzz around the Pentagon's hallways these days is about UAVs -- unmanned aerial vehicles -- and Northrop, with its white-hot Global Hawk spycraft (pictured below), is the best-positioned of the Big Five defense contractors in this potentially lucrative field. Meantime, the company is battling to acquire Newport News, arguing that a proposed takeover of the famed shipbuilder by General Dynamics will create a giant that hogs naval contracts.

LOCKHEED MARTIN With $18 billion in defense sales -- and an arsenal ranging from planes to missiles to radar systems -- Lockheed is the mother of all contractors. Its aeronautics division (which accounts for 20% of the company's $25 billion in revenue and 24% of operating profits) makes the F-16 fighter, the C-130 transport and the F-22 Raptor, the latest-generation Air Force fighter, costing an estimated $97 million each to produce. Lockheed is saddled with $9 billion in debt, but plenty of cash could start to stream in as early as next year: The company is competing against Boeing for the Pentagon's largest contract ever -- a 27-year, $200 billion megadeal to build 3,000 next-generation Joint Strike Fighters that are to be used by several branches of the military. The Pentagon is expected to award the contract soon, and most observers are betting on Lockheed, which is considered to have the most innovatively designed test model (see above).

GENERAL DYNAMICS With the end of the Cold War, it's unlikely that General Dynamics will see any more orders for its costly Seawolf submarines or its antiquated tanks. Still, as the largest maker of naval vessels, the company should do just fine. Its less expensive subs (like the Los Angeles-class, at right) should figure high on the Navy's wish list because of their strong intelligence-gathering capabilities. (Our underwater fleet regularly listens in on phone conversations in other countries.) Many analysts expect General Dynamics to acquire shipbuilder Newport News, despite a competing bid from rival Northrop. Another bonus: General Dynamics' great balance sheet is further boosted by its Gulfstream private-jet unit, acquired in 1999 and seeing a surge in business as corporate executives avoid commercial airplanes.

BOEING You know the numbers -- 747, 757, 767 -- but did you know that the world's largest commercial jet maker is also one of the largest military aircraft contractors? Boeing's lineup includes the FA-18EF Super Hornet, the Navy's latest carrier-based fighter jet, and the C-17, the Air Force's new airlift transport. The company stands to benefit from an increased military need for surveillance aircraft like the E-3 airborne warning and control system (also known as AWACS) and unmanned aerial vehicles. But a recent collapse in demand for commercial aircraft, which accounted for 60% of Boeing's $51 billion in revenue last year, is for now a painful thorn in the company's side.

RAYTHEON The nation's premier missile house makes the Tomahawk cruise missile (at right) and the Persian Gulf War's Scud-busting Patriot missile system. Both weapons proved effective in that conflict, as well as during our intervention in Kosovo -- effective enough that the U.S. military's stockpiles are now quite low. Retaliations against the perpetrators of the Sept. 11 attacks mean more orders. Raytheon should also benefit from increased demand for UAVs, since it makes the radars and sensors that comprise the guts of those unmanned aircraft. With roughly $8 billion in debt, that kind of boost couldn't have come at a better time.