S&P Cautions On Defense Companies' Performance

By John S. McClenahen Stock prices for some U.S. defense contractors have risen in recent days, a reaction to expectations they'll get significantly more business in the wake of the Sept. 11 terrorist attacks on the U.S. But, pointing out that any near-term U.S. response will rely on existing equipment and ordnance, Standard & Poor's (S&P), New York, is cautioning against expecting a sudden and dramatic increase in companies' performance. "Any positive financial impact on U.S. defense firms from higher budget outlays would necessarily be realized over an extended period of time and could be diffused over many companies," stresses S&P. What's more, "defense contractors could need to invest in infrastructure and inventories, requiring cash outlays, before receiving government payments tied to production rates."

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