The defense technology sector is flourishing owing to the integration of groundbreaking technologies into operations and increased government support. Hence, investors could scoop up shares of robust defense technology stocks, Northrop Grumman Corporation (NOC), CAE Inc. (CAE), and Science Applications International Corporation (SAIC).

The defense sector has been awarded with a range of supportive options from the government. The outgoing U.S. President, Joe Biden, issued the first-ever National Security Memorandum on Artificial Intelligence, which ordered the U.S. military and intelligence agencies to adopt and deploy artificial intelligence.

Moreover, a proposed budget of $850 billion for the Department of Defense for 2025 indicates the government’s dedication to improving national security for the long term through the introduction of advanced technologies to the defense sector. With AI being a critical aspect of modern warfare, combined with training programs that involve AR/VR, the defense technology sector is ready for a new era.

For the defense sector as a whole, its Air Force segment is expected to experience the most growth due to various procurement plans for replacing aging combat aircraft and new unmanned aerial vehicles. With a budget request of $217.50 billion for the fiscal year 2025, the segment is expected to thrive in the coming years.

According to a report by Mordor Intelligence, the U.S. Defense market is expected to reach $382.56 billion by 2030, growing at a CAGR of 3.6%, indicating the opportunities present for investors.

Now, let us dive deep into the fundamentals of three defense technology stocks, starting with #3.

Stock #3: Northrop Grumman Corporation (NOC)

NOC is an aerospace and defense technology company. The company operates through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems.

NOC’s trailing-12-month ROCE of 15.48% is 13.3% higher than the industry average of 13.67%. Its trailing-12-month CAPEX/Sales of 4.28% is 52.5% higher than the sector average of 2.81%. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.88x is 12.2% higher than the industry average of 0.78x.

For the fiscal 2024 third quarter that ended September 30, NOC’s total sales increased 2.3% year-over-year to $10 billion. Its operating income rose 10.2% from the year-ago value to $1.12 billion. Additionally, the company’s net earnings and EPS grew 9.5% and 13.3% from the prior year’s quarter to $1.03 billion and $7, respectively.

Analysts expect NOC’s revenue and EPS for the fiscal 2025 first quarter (ending in March) to increase 1.8% and 4.4% year-over-year to $10.32 billion and $6.60, respectively. Moreover, the company has surpassed consensus EPS estimates in all four trailing quarters, which is impressive.

NOC’s shares surged 7% over the past month and 14.7% over the past six months to close the last trading session at $502.41.

NOC’s POWR Ratings reflect its strong fundamentals. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

NOC has an A grade for Momentum and a B for Stability and Sentiment. Within the Air/Defense Services industry, NOC is ranked #2 out of 70 stocks.

To access NOC’s Quality, Growth, and Value ratings, click here.

Stock #2: CAE Inc. (CAE)

Headquartered in Saint-Laurent, Canada, CAE provides simulation training and critical operations support solutions. The company has two segments: Civil Aviation; and Defense and Security. It offers training solutions for flight, cabin, maintenance, and ground personnel in commercial, business, and helicopter aviation.

On January 16, 2025, CAE inaugurated its first Air Traffic Services (ATS) Training Centre, on its campus in Montreal, Canada, in collaboration with NAV CANADA. The training center aims to achieve operational excellence, ensuring safe and efficient air navigation. This could enhance the company’s market position.

On December 10, 2024, CAE announced the launch of its Unified Task Board, a new disruption management solution for airline operations control centers (OCC). The center plans to streamline critical decision-making and boost operational efficiency during time-critical situations.

CAE’s trailing-12-month EBITDA margin of 16.46% is 17.9% higher than the industry average of 13.96%. Additionally, the stock’s trailing-12-month levered FCF margin of 7.65% is 10.7% higher than the sector average of 6.91%.

For the fiscal 2025 third quarter that ended September 30, 2024, CAE’s revenue increased 8.2% year-over-year to CAD$1.14 billion ($791.93 million). Its operating income rose 20.9% from the year-ago value to CAD$118.10 million ($82.29 million).

Moreover, the company’s adjusted net income and adjusted EPS amounted to CAD$76.20 million ($53.09 million) and CAD$0.24, respectively.

Street expects CAE’s revenue and EPS for the fiscal 2025 fourth quarter (ending in March) to increase 4.2% and 22.2% year-over-year to $860.88 million and $0.33, respectively.

Shares of CAE surged 30.1% over the past three months and 30.5% over the past nine months to close the last trading session at $24.19.

CAE’s robust fundamentals are mirrored in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.

CAE has an A grade for Momentum and a B for Growth and Stability. Within the Air/Defense Services industry, CAE is ranked #15 out of 70 stocks.

In addition to the POWR Rating highlighted above, you can check CAE’s ratings for Value, Sentiment, and Quality here.

Stock #1: Science Applications International Corporation (SAIC)

SAIC offers technical, engineering, and enterprise information technology (IT) services. It provides IT modernization, digital engineering, artificial intelligence, weapon systems support design, build, modify, integrate, and sustain weapon systems, and other end-to-end services.

On December 18, 2024, SAIC secured a contract worth $170.9 million from the State of Texas Department of Information Resources (DIR) to provide robust cybersecurity services for the protection of state agency networks. The contract would enhance SAIC’s presence in the cybersecurity sector and boost the company’s topline growth.

On December 16, 2024, SAIC secured a prime position on the $1.8 billion Personnel and Readiness Infrastructure Support Management (PRISM) Multiple Award Task Order contract to support the Department of Defense and its need to obtain critical services in a shorter time frame.

The company aims to enhance the operational capabilities of the Office of the Under Secretary of Defense for Personnel & Readiness and its Directorates. This could strengthen SAIC’s market position.

SAIC’s trailing-12-month ROCE of 17.62% is 28.9% higher than the industry average of 13.67%. Its trailing-12-month ROTC of 8% is 15% higher than the sector average of 6.96%. Furthermore, the stock’s trailing-12-month asset turnover ratio of 1.35x is 72.2% higher than the 0.78x industry average.

For the fiscal 2025 third quarter that ended November 1, 2024, SAIC’s revenues increased 4.3% year-over-year to $1.98 billion. Its adjusted operating income rose 9.6% from the year-ago value to $195 million. Additionally, the company’s net income and adjusted EPS grew 14% and 15% from the prior year’s quarter to $106 million and $2.61, respectively.

The consensus revenue and EPS estimates of $1.81 billion and $2.09 for the fiscal 2025 fourth quarter (ending in January) exhibit a year-over-year rise of 4.3% and 45.8%, respectively. Additionally, the company has surpassed consensus revenue estimates in all four trailing quarters, which is noteworthy.

Shares of SAIC have surged 7.5% over the past month to close the last trading session at $119.76.

SAIC’s POWR Ratings reflect its stable prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

SAIC has an A grade for Momentum and a B for Growth and Value. Within the B-rated Technology – Services industry, SAIC is ranked #14 out of 78 stocks.

Click here to access SAIC’s rating for Stability, Sentiment, and Quality.

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NOC shares were unchanged in premarket trading Thursday. Year-to-date, NOC has gained 7.06%, versus a 3.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Aritra_Gangopadhyay

Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success. More...

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