LMT: 3 High-Tech Defense Stocks Focused on the Future of Security

From developing innovative solutions to address modern security challenges, the high-tech defense sector is in the midst of it. Firms in this sector are focusing on areas such as Artificial Intelligence (AI), cybersecurity, and autonomous systems to enhance defense capabilities.

Given the industry’s strong tailwinds, investing in high-tech defense stocks such as TransDigm Group Incorporated (TDG - Get Rating), General Dynamics Corporation (GD - Get Rating), and Lockheed Martin Corporation (LMT - Get Rating) presents a potential opportunity.

The defense industry is focusing mainly on the integration of AI into surveillance and reconnaissance systems. According to a recent Deloitte survey, 81% of respondents from the aerospace and defense industry reported that they are already using or plan to use AI and Machine Learning (ML) technology. Such tools can analyze vast amounts of data in real-time, providing actionable intelligence to decision-makers in critical situations.

Autonomous systems, including drones and unmanned vehicles, are revolutionizing how missions are carried out by reducing human risk and enhancing operational efficiency. Moreover, defense companies aim to create smarter, more efficient tools to protect national and global security interests.

The defense market is anticipated to reach $527.06 billion by 2025, growing at a CAGR of 7.3%. Also, in 2025, the aerospace and defense market is projected to reach $875.37 billion, exhibiting a CAGR of 6.7%.

Considering these factors, let’s evaluate the fundamental aspects of the three Air/Defense Services picks, beginning with the third choice.

Stock #3: TransDigm Group Incorporated (TDG - Get Rating)

TDG designs, produces, and supplies aircraft components internationally. The company operates through three segments: Power & Control; Airframe; and Non-aviation.

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For the fourth quarter of 2024, which ended on September 30, TDG’s net sales increased 18% year-over-year to $2.18 billion. Its gross profit rose 15.3% from the year-ago value to $1.26 billion. The company’s adjusted net income amounted to $570 million, up 23.9% year-over-year, and its adjusted earnings per share was $9.83 per share, representing an increase and 22.4% from the same period last year. Also, its EBITDA as defined for the quarter increased 19.3% year-over-year to $1.15 billion.

As per the updated guidance for the fiscal year 2024, TDG forecasts sales between $8.75 billion to $8.95 billion. It expects adjusted EPS between $35.36 and $37.28. The company also expects EBITDA, as Defined, to be in the range of $4.62 billion to $4.76 billion.

The consensus revenue estimate of $2.03 billion for the fiscal first quarter (ended December 2024) represents a 13.3% increase year-over-year. The consensus EPS estimate of $7.74 for the same quarter indicates an 8.1% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

The stock has surged 25.9% over the past year and 8.7% over the past nine months to close the last trading session at $1349.98.

TDG’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TDG has an A grade for Momentum and a B for Quality. It is ranked #21 out of 70 stocks in the Air/Defense Services industry. Click here to see the additional ratings for TDG (Growth, Value, Stability, and Sentiment).

Stock #2: General Dynamics Corporation (GD - Get Rating)

GD operates as an aerospace and defense company worldwide. It offers a portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions, and technology products and services. The company operates through four segments: Aerospace; Marine Systems; Combat Systems; and Technologies.

On November 22, GD’s business unit, Gulfstream Aerospace Corp., secured an award of contractor logistics support services (CLS) contract from the U.S. Air Force Life Cycle Management Center for C-20 and C-37 fleets. It is a seven-year contract valued at $991 million that allows GD to provide services to the U.S. Air Force, U.S. Navy, U.S. Marine Corps, U.S. Army, and U.S. Coast Guard.

On September 19, General Dynamics Information Technology (GDIT), a business unit of GD, received a $299 million contract from the Defense Information Systems Agency (DISA) to continue supporting the Pentagon’s network infrastructure. This program allows GD to optimize the IT environment and improve the speed, security, and reliability of the network infrastructure.

During the third quarter that ended on September 29, 2024, GD’s revenue increased 10.4% year-over-year to $11.67 billion. The company’s operating earnings came in at $1.18 billion, reflecting an increase of 11.7% from the prior year. In addition, its net earnings came in at $930 million, up 11.2% year-over-year, while its EPS grew 10.2% from the year ago value to $3.35. GD’s free cash flow increased 11.1% year-over-year, to $1.22 billion.

Street expects GD’s revenue for the fiscal fourth quarter (ended December 2024) to increase 9.7% year-over-year to $12.80 billion. Moreover, its EPS estimate of $4.02 for the same period indicates a 10.5% year-over-year growth. In addition, it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Over the past year, the stock has surged 7.7%, closing the last trading session at $268.56.

GD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has an A grade for Momentum and a B for Value. Out of 70 stocks in the same industry, GD is ranked #20. Click here to see GD’s rating for Growth, Stability, Sentiment, and Quality.

Stock #1: Lockheed Martin Corporation (LMT - Get Rating)

LMT is a global security and aerospace company that engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.

On January 22, LMT secured an award of a $270 million contract from the U.S. Air Force to integrate a system of next-generation infrared defensive sensors on the F-22 Raptor. In this contract, LMT will modernize the F-22’s newly developed, distributed set of embedded TacIRST sensors that enhance aircraft survivability and lethality.

On December 16, LMT launched Astris AI, a subsidiary focused on enabling the adoption of AI solutions across the defense industrial base. This launch is to address the rapid pace of technological advancements, costs, and scaling challenges, requiring to develop and deploy secure, resilient, and scalable AI solutions.

LMT’s net sales for the third quarter, which ended on September 29, 2024, grew marginally from the year-ago value to $17.10 billion, while the operating profit rose 4.8% from the prior-year period to $2.14 billion. Moreover, the company’s net earnings for the quarter came in at $1.62 million, and EPS attributable stood at $6.80, up marginally year-over-year.

According to the full-year 2024 outlook, LMT forecasts net sales of approximately $71.25 billion. The company also expects EPS to be approximately $26.65 and free cash flow of nearly $6.2 billion.

Analysts expect LMT’s revenue for the first quarter (ending March 2025) to increase 2.7% year-over-year to $17.67 billion, while its EPS for the same period is expected to grow 2.5% from the prior year to $6.49. Moreover, it topped Street EPS estimates in each of the trailing four quarters, which is promising.

Shares of LMT have surged 13.1% over the past year and 8.1% over the past nine months to close the last trading session at $497.28.

LMT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has an A grade for Momentum and a B for Value and Quality. Within the Air/Defense Services industry, it is ranked #5. Click here to see LMT’s ratings for Growth, Stability, and Sentiment.

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LMT shares were trading at $497.06 per share on Friday afternoon, down $0.22 (-0.04%). Year-to-date, LMT has gained 2.29%, versus a 3.63% rise in the benchmark S&P 500 index during the same period.