Iran War Fallout: Kuwait Hires 3 Pentagon Contractors to Build It a $2.5 Billion Defense System
Key Points
Kuwait has requested permission to buy a $2.5 billion integrated battle command system from Northrop Grumman, RXT, and Lockheed Martin.
Northrop Grumman is likely to receive the bulk of this defense contract.
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The United States spent $25 billion fighting the Iran war -- but other countries suffered far more.
Kuwait, in particular, was targeted by an onslaught of 13 cruise missiles, 336 ballistic missiles, and 740 drones over the course of the war, straining its defense network past the limit. In addition to U.S. military bases in Kuwait -- Ali al-Salem Air Base, Camp Arifjan, and Camp Buehring -- Iran also damaged the country's Mina al-Ahmadi oil refinery, the Shuwaikh oil sector complex, and power generation facilities and water desalination plants.
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Even air defense systems were successfully targeted, including a Patriot missile battery at Ali al-Salem. "The Iranian attacks were precise. There are no random craters indicating misses," Center for Strategic and International Studies advisor and retired USMC Colonel Mark Cancian told The Washington Post.
Next time, Kuwait hopes to be better prepared to defend itself, and for this reason, it's asking Congress for permission to buy an Integrated Battle Command System from three U.S. defense contractors -- for $2.5 billion.
Image source: Getty Images.
Earlier this month, the U.S. State Department notified Congress of Kuwait's request to purchase six dismounted Integrated Battle Command System (IBCS) engagement operations centers (EOC), two hosted IBCS EOCs, six dismounted IBCS integrated collaborative environments (ICE), two hosted IBCS ICEs, 14 mounted IBCS integrated fire unit modification kits, 35 launcher-integrated network kits, and a host of related equipment.
The State Department has declared "an emergency exists that requires the immediate sale to Kuwait of the above defense articles." As a result, it's almost certain the sale will be approved.
What investors need to know
Northrop Grumman (NYSE: NOC), RTX Corporation (NYSE: RTX), and Lockheed Martin (NYSE: LMT) were named the principal contractors on the $2.5 billion arms deal, but according to its website, Northrop is the prime contractor on ICBS. The bulk of these funds will likely go to Northrop, with RTX and Lockheed serving as subcontractors.
For investors in Northrop, this is very good news indeed.
Northrop's Mission Systems division builds IBCS centers, and according to data from S&P Global Market Intelligence, Mission Systems is by far Northrop's most profitable business unit. Last year, Northrop MS generated a superb 14.6% operating profit margin. In contrast, RTX and Lockheed average operating margins closer to 12% and 9%, respectively -- and so would earn far less profit on this contract. Even better (from an investor's perspective), Northrop's low 17.1 price-to-earnings ratio makes it arguably the cheapest of the three defense contractors to invest in.
Granted, with $42.4 billion in annual sales, even winning the bulk of a $2.5 billion defense contract might not move the needle much on a stock as large as Northrop -- but every little bit helps.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends RTX. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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