'Defense in Limbo'

That's the subheadline for Credit Suisse analysts Robert Spingarn and Julie Yates in their just-published quarterly outlook for the defense industry.

A taste:

We expect a relatively quiet quarter from defense contractors, especially given previous delays in FY-10 budget approval. We suspect that government services revenues and margins could come in a little light given recent trends. DoD is in the process of overhauling its cash management and payment protocols, which could eventually drive higher working capital requirements for contractors, but it is probably to soon to see much impact on cash flow in the quarter. There were several large int’l orders in the quarter such as Boeing's order from UAE for 6 C-17s, (Lockheed Martin's) order from Egypt for 20 F-16s and the UK's selection of (General Dynamics) for up to 580 (Austrian Spanish Cooperation Development) vehicles. Separately, in a competitive bid (Raytheon) beat out (Northrop Grumman) for an $886M contract for next-gen GPS. We foresee small guidance increases from (L-3 Communications) and (Raytheon).