The defense industry doesn’t often attract heightened investor attention because it doesn’t typically deliver growth prospects that are as solid as, say, the tech and other high growth industries. However, defense stocks do provide stability thanks to these companies’ long-term contracts with the government.
The Biden Administration’s proposed 2022 defense budget, which was released last month, seeks a colossal $753 billion for national defense. Within this amount, the Department of Defense (DOD) is asking Congress for $715 billion for funding weapons programs and key national security priorities. Given the uncertain global geopolitical environment currently, with emerging threats from China and Russia, this year’s budget proposal is considered important. And investors’ interest in the sector is evidenced by the Invesco Aerospace & Defense ETF’s (PPA) 9% returns over the past three months.
The Pentagon’s proposed procurement of advanced military equipment to replace aging equipment that is currently in service, along with technological advances, is expected to accelerate the defense sector’s growth. So, we think, aerospace and defense companies Lockheed Martin Corporation (LMT), General Dynamics Corporation (GD), L3Harris Technologies, Inc. (LHX), and Textron Inc. (TXT) could witness solid growth.
Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company that is engaged in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: aeronautics; missiles and fire control, rotary and mission systems; and space. Its offerings include combat aircraft, missile defense systems and military helicopters.
On June 2, 2021, LMT announced that it is working for the U.S. Air Force Life Cycle Management Center to integrate critical battle management capabilities from the Theater Battle Management Core System (TBMCS) with the Air Force’s Kessel Run All Domain Operations Suite (KRADOS) to support Joint All Domain Command and Control. LMT is playing an important role enhancing its key software components and incorporating them into Kessel Run’s suite of applications.
LMT’s net sales surged 3.9% year-over-year to $16.26 million in the first quarter ended March 28, 2021. Its consolidated operating profit grew 2.8% year-over-year to $2.18 billion. And its net earnings came in at $1.84 billion, which represents a 7% year-over-year increase. The company’s EPS was $6.56, up 7.9% year-over-year.
For the current quarter, ending June 30, 2021, analysts expect LMT’s EPS and revenue to increase 12.8% and 11.2%, respectively, year-over-year to $6.53 and $16.93 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 13.8% over the past three months to close yesterday’s trading session at $387.72.
It’s no surprise that LMT has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value, Sentiment, Stability and Quality. Click here to see LMT’s ratings for Growth and Momentum as well. LMT is ranked #6 of 64 stocks in the Air/Defense Services industry.
General Dynamics Corporation (GD)
GD is an aerospace and defense company. It operates through four segments: aerospace; marine systems, combat systems, and technologies. Its Marine Systems segment designs and builds nuclear-powered submarines, surface vessels, and auxiliary ships for the United States’ Navy, and Jones Act ships for commercial customers.
Gulfstream Aerospace Corp., a wholly owned subsidiary of GD, announced on March 9, 2021, that it had been awarded $696 million in contracts from the U.S. Air Force Life Cycle Management Center to r engineer services support and contractor logistics for C-20 and C-37 aircraft.
The company’s revenue increased 7.3% year-over-year to $9.39 billion for its fiscal first quarter, ended April 4, 2021. Its total order backlog grew 4.5% year-over-year to $89.6 billion, while its net earnings increased 0.3% year-over-year to $708 million. The company’s EPS increased 2.1% year-over-year to $2.48.
Analysts expect GD’s EPS to increase 16.1% year-over-year to $2.53 for the current quarter, ending June 30, 2021. It surpassed the consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to be $40.7 billion in , which represents a 4.2% year-over-year rise. The stock has surged 34.3% over the past nine months to close yesterday’s trading session at $191.48.
GD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Stability and Value.
L3Harris Technologies, Inc. (LHX)
Aerospace and defense technology company LHX provides mission-critical solutions for government and commercial customers internationally. Its integrated mission systems segment provides multi-mission intelligence, surveillance, and reconnaissance (ISR) systems. The company’s communication systems segment provides tactical radio communications, SATCOM terminals, and battlefield management networks.
On May 6, 2021, LHX and Air Tractor teamed up to produce the AT-802U Sky Warden, an affordable, production-ready aircraft designed for airborne intelligence, surveillance and reconnaissance (ISR) and other missions in extreme combat environments. Luke Savoie, LHX’s President of Aviation Services, said: “This enables our team to design and provide a mature platform capable of operating anywhere in the world and provides the tools needed to support any mission.”
The company’s integrated mission systems revenue increased 5.9% year-over-year to $1.45 billion for the first quarter, ended March 31, 2021. Its adjusted EBIT grew 6.7% year-over-year to $862 million, while its net income increased 140% year-over-year to $466 million. The company’s EPS increased 127% year-over-year to $2.25.
For the quarter ending September 30, 2021, analysts expect LHX’s EPS to increase 14.1% year-over-year to $3.24. It surpassed the Street’s EPS estimates in each of the trailing four quarters. LHX’s annual revenue is expected to be $19.60 billion in 2022, which represents a 4.6% year-over-year rise. The stock has surged 24.5% over the past nine months to close yesterday’s trading session at $219.58.
LHX’s POWR Ratings reflect this promising outlook. The company has an overall B, which translates to Buy in our proprietary ratings system.
The stock has a B grade for Stability. Within the Air/Defense Services industry, LHX is ranked #12.
To see the additional POWR Ratings for LHX (Growth, Value, Momentum, Sentiment and Quality), click here.
Textron Inc. (TXT)
TXT is engaged in the aircraft, defense, industrial, and finance businesses. Its Textron Aviation segment manufactures, sells, and services business jets, turboprop and piston engine aircraft, and military trainer and defense aircraft. The company’s Textron Systems segment offers unmanned aircraft systems, unmanned surface systems, mission command hardware and solutions, and customer support and logistics services.
TXT’s wholly owned subsidiary, Bell Textron Inc., announced on June 9, 2021, that the Genesys HeliSAS autopilot in the Bell 505 has received certification from the United Kingdom’s Civil Aviation Authority (CAA). With the latest Garmin avionics, dual channel FADEC-controlled engine and Genesys HeliSAS autopilot, the Bell 505 is the most advanced short light single aircraft on the market. So, TXT should witness increasing demand for the aircraft.
The company’s revenue increased 3.7% year-over-year to $2.88 billion for its fiscal first quarter, ended April 3, 2021. Its segment profit grew 64.1% year-over-year to $256 million. TXT’s net income increased 242% year-over-year to $171 million. And its EPS increased 240.9% year-over-year to $0.75.
Analysts expect TXT’s EPS and revenue to increase 400% and 18.2%, respectively, year-over-year to $0.65 and $2.92 billion for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 92.9% over the past year to close yesterday’s trading session at $68.22.
TXT’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has a B grade for Value, Growth and Sentiment.
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LMT shares were trading at $386.60 per share on Friday morning, down $1.12 (-0.29%). Year-to-date, LMT has gained 10.48%, versus a 13.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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