Defense stocks roar higher on $110 billion US-Saudi Arabia weapons deal

Defense stocks took off on Monday after President Donald Trump inked a nearly $110 million weapons deal with Saudi Arabia.

During premarket trading, Lockheed Martin was up about 3.4 percent, Raytheon was up more than 4 percent, and Northrop Grumman and General Dynamics were both climbing higher by about 2 percent. The deal will be worth $350 billion over 10 years.

Additionally, the iShares U.S. Aerospace & Defense ETF (ITA) was up about 1.5 percent on the whole in early hours.

Jet maker Boeing also signed a handful of deals with Saudi Arabia during President Trump’s weekend visit, involving the sale of military and passenger aircraft. Its stock was up about 1.7 percent Monday morning.

These types of arms deals have caused defense stocks to rally in the past, according to CNBC analysis using Kensho.

One month after about 40 U.S.-Saudi Arabia arms deals — going back to 2009 — the iShares U.S. Aerospace & Defense ETF was up 3.3 percent, on average, almost double the return of the S&P 500, according to data compiled by Kensho.

“The key, and as yet unknown, issue will be (1) when/if all the various items mentioned are put under contract and (2) when they are to be delivered,” Cowen analyst Cai von Rumohr wrote in a note to clients.

“Given the generally extended period required to finalize foreign arms contracts, we’d expect little impact on 2017 results, with some potential benefit in 2018 and more in 2019,” Rumohr went on.

Lockheed Martin is slated to be the biggest potential winner following this news, with Raytheon being a “potential dark horse winner,” should its Patriotic missile be purchased, Rumohr said.

Trump’s deal with the Saudis solidifies a decades-long alliance with the world’s largest energy producer, and will be worth $350 billion over 10 years.

Lockheed Martin, whose technology was part of the U.S-Saudi accord, said in a statement that the deal “will directly contribute to [Saudi Arabia’s] Vision 2030 by opening the door for thousands of highly skilled jobs in new economic sectors.”

—Javier David contributed to this report.

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