Forget Virgin Galactic Holdings, Buy These 2 Aerospace Stocks Instead

NYSE: LMT | Lockheed Martin Corp. News, Ratings, and Charts

LMT – Despite Virgin Galactic’s (SPCE) successful recent mission to the edge of space and back, past technical issues, delays in flight tests, and potentially tough future competition are a few reasons why we think the stock is a risky bet and should be avoided now. Instead, we think the stocks of aerospace companies Lockheed Martin (LMT) and Northrop Grumman (NOC) have the potential to outperform the market given that they are driving the industry forward. Read on for insights into these companies’ prospects.

After previous failed attempts, Richard Branson’s Virgin Galactic Holding, Inc.’s (SPCE) rocket-powered plane finally reached space. While the event was a milestone in Branson’s nearly two-decades-long effort to achieve this. But now the plane is finally ready to ferry passengers to the edge of space, the company could face intense competition from Jeff Bezos’ Blue Origin, which  plans to emulate SPCE beginning in July.

Furthermore, since the company’s last mission in December was aborted due to a fire in the engine, potential customers might have qualms about flying in the craft. Delays in its commercial space flights and flight tests amid increasing competition have made investors nervous about the stock’s future growth potential. SPCE’s stock has declined 3.2% over the past three months.

Conversely, the shares of two other companies in the space sector—Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC)—are performing better than SPCE. And  these companies have better financials. We believe these two companies are well positioned to capitalize on the space industry’s  growth potential. So, it could be wise to bet on these stocks now.

Lockheed Martin Corporation (LMT)

Headquartered in Bethesda, Maryland, LMT is a global security and aerospace company. It operates through four segments: aeronautics, missiles and fire control, rotary and mission systems, and space. Its  product offerings include combat and air mobility aircraft, missile defense systems, military and commercial helicopters, and satellites.

Last month, LMT teamed up with the U.S. Navy and completed its first flight test integrating Sniper Advanced Targeting Pod (ATP) into  the F/A-18E/F Super Hornet for the Kuwait Air Force. The integration should give existing and future Super Hornets the ability to add Sniper ATP’s capabilities and improve their  performance.

LMT’s net sales increased 3.9% year-over-year to $16.26 billion in the first quarter, ended March 28. Its gross profit grew 4.8% from the year-ago value to $2.19 billion, while its operating profit rose 2.8% year-over-year to $2.18 billion. The company reported $.84 billion in net earnings for this period, representing a 7% increase year-over-year. Its EPS was  $6.56 for the period, compared to its $6.08 year-ago EPS loss.

Analysts expect LMT’s revenue to increase 11.2% year-over-year to $16.93 billion in the current quarter, ending June 2021, while its EPS is expected to grow at 12.8%  rate per annum for the same period. The stock has gained 13.6% over the past three months.

LMT’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

LMT is rated a B in Quality, Stability and Value also. Within the 65-stock Air/Defense Services industry, it is ranked #9. To see additional POWR Ratings for Growth, Momentum and Sentiment for LMT, Click here.

Northrop Grumman Corporation (NOC)

NOC is a global aerospace and defense company. It  functions through four segments: aeronautics systems, defense systems, mission systems, and space systems. Its product portfolio includes aircraft systems, weapon and mission systems, electronic warfare systems, airborne sensors and networks.

In March, NOC was selected by the Missile Defense Agency (MDA) for the Next Generation Interceptor (NGI) program to conduct flight tests and rapidly develop an interceptor for national defense purposes.  For this contract, the company has teamed up with Raytheon Technologies Corporation (RTX) to integrate its  technological capabilities.

In the first quarter, ended 31st March 2021, NOC’s sales increased 6% year-over-year to $9.2 billion, while its total operating income increased 202% from its year-ago value to $2.82 billion. The company’s net earnings increased 153% year-over-year to $2.2 billion. Its EPS rose 161% year-over-year to $13.43.

Analysts expect NOC’s revenue for its 2022  fiscal year to increase 4.8% year-over-year to $37.55 billion. The company’s EPS is likely to increase 4% year-over-year to $24.6 in the current year. NOC’s stock has gained 9.1% over the past year.

It is no surprise that NOC has an overall B rating, which translates to Buy in our proprietary ratings system. It also has a B grade for Quality, Stability and Value. In the Air/Defense Services industry, it is ranked #6 of 65 stocks.

In total, we rate NOC on eight different levels. Beyond what we’ve stated above, we have also given NOC grades for Growth, Sentiment and Quality. Get all the NOC ratings here.

LMT shares were trading at $394.92 per share on Friday morning, up $7.57 (+1.95%). Year-to-date, LMT has gained 12.86%, versus a 13.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Samiksha Agarwal

Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...

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