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Guess Who Just Won $4.3 Billion in Pentagon Contracts?

For many investors, the U.S. government seems a black box. Taxes go in, spending comes out — but with the exception of the occasional headline-grabbing megacontract, where the spending goes, and how much goes to whom, remains very much a mystery.

But if you look very carefully (and know where to look), you can sometimes get a glimpse at where the money is going. Believe it or not, one of the easiest places to spy on government spending is… the U.S. Pentagon.

Huntington Ingalls swims away with the gold
Wrapping up the work week with a huge “bang,” the U.S. Department of Defense awarded only 10 contracts on Friday — but still managed to spend $4.29 billion doing it. The bulk of the loot went to just one company, Naval warship specialist Huntington Ingalls (NYSE:HII), which bagged two big contracts:

-$3.35 billion to complete “all remaining detail design and construction (DD&C) efforts” necessary to build the U.S. Navy’s newest aircraft carrier, the USS John F. Kennedy (CVN 79). Design work on the Kennedy is expected to continue through June 2022. Current Navy plans call for the Kennedy to become operational sometime in 2025, when the USS Nimitz (CVN-68) is due to be decommissioned.

– A further $941 million, which will pay the labor costs of component and steel fabrication on the Kennedy, for construction of selected unit assemblies, and for “all remaining direct material” to be used in the construction of the ship. Construction will apparently be going on simultaneously with the drawing up of plans, as this second contract is likewise scheduled for completion in June 2022.

Separately, defense contractor L-3 Communications (NYSE:LLL) was awarded two contracts Friday, $23.2 million to support Air Force King Air 350 aircraft, and a further $10.5 million to supply Australia with ground support equipment for C-27J Spartan transport aircraft.

Britain’s BAE Systems (NasdaqOTH:BAESY) also won an award, a $26.8 million contract to supply tailcones and propulsors for two Virginia-class fast attack submarines, respectively, the USS Vermont (SSN 792) and the USS Oregon (SSN 793).

Insider trading notes
Insider trading activity at BAE Systems, a London-listed equity, is unknown.

As regards L-3 Communications, trading at the former has been brisk, but light. 19 open market insider “buy” transactions have been recorded over the past three months, but for a total of only 10,439 shares. There have been no insider sales reported.

Huntington Ingalls presents perhaps the trickiest insider picture, with buys outnumbering sells 15-to-4, but vastly more shares being sold than purchased. Net trading activity for the past three months shows 17,225 more shares sold than bought.


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