Geopolitical tensions have escalated as Western allies prepare for a military confrontation between Russia and Ukraine. The U.S. Department of Defense said that about 8,500 American troops are on heightened alert for immediate action if Russia does invade Ukraine.
The United States has been seeking to stave off the potential invasion, with high-profile discussions between President Joe Biden and his Russian counterpart Vladimir Putin. “One nation can’t force another nation to change its border; one nation cannot tell another to change its politics,” Biden told the Russian leader. He also stated that the United States is ready to impose economic penalties if military action increases. On the other hand, China’s ambassador issued a warning to the United States last week that it could face “military conflict” with China over the future status of Taiwan.
Although geopolitical uncertainty continues to rattle investors, this bodes well for defense stocks as governments increase military purchases to strengthen their capabilities. Given this backdrop, major defense stocks Raytheon Technologies Corporation (RTX), Lockheed Martin Corporation (LMT), and L3Harris Technologies, Inc. (LHX) could be ideal bets now. These stocks are already outperforming the broader market.
Raytheon Technologies Corporation (RTX)
RTX operates as an aerospace and defense company, providing systems and services for commercial, military, and government customers worldwide. It operates through four segments: Collins Aerospace Systems; Pratt and Whitney; Raytheon Intelligence and Space; and Raytheon Missiles and Defense.
Last month, Collins Aerospace, an RTX business, closed a deal with Boeing Company (BA) to be their long-term provider of next-generation lavatories for the 737 family of aircraft. It is expected to be available by the beginning of 2025. This long-term deal should enable the company to garner significant revenues. Boeing also selected Collins Aerospace to upgrade the aircraft with a new electric power generation system (EPGS).
Last month, RTX announced the repurchase of up to $6 billion of the company’s outstanding common stock, increasing existing shareholders’ returns.
RTX’s net sales increased 3.8% year-over-year to $17.04 billion in the fiscal fourth quarter ended December 31. Its operating profit grew 829.6% from the year-ago value to $1.32 billion, while its adjusted net income improved 43.9% year-over-year to $1.61 billion. Its adjusted EPS increased 46% from its year-ago value to $1.08.
Street expects the company’s revenue to increase 5.1% year-over-year to $16.03 billion in the fiscal first quarter ending March 2022. The consensus EPS estimate of $1.04 indicates a rise of 16.1% year-over-year. Also, RTX has an impressive earnings surprise history as it beat Street EPS estimates in each of the trailing four quarters.
RTX shares have gained 35.2% over the past year and 4.8% over the past month to close its last trading session at $90.19.
RTX’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates 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.
RTX is also rated a B in Growth and Stability. Within the Air/Defense Services industry, it is ranked #8 of 74 stocks.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the RTX’s Value, Momentum, Sentiment, and Quality ratings here.
Lockheed Martin Corporation (LMT)
LMT operates as a security and aerospace company. The company engages in the research, development, manufacture, integration of technology systems, products, and services worldwide. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
Last month, LMT teamed up with tech giants Amazon.com, Inc. (AMZN) and Cisco Systems, Inc. (CSCO) to integrate unique human-machine interface technologies into NASA’s Orion spacecraft, pushing the limits of voice technology and A.I. The first-of-its-kind technology, Callisto aims to enable future astronauts to be more self-reliant as they explore deep space. This next-generation solution demonstrates LMT’s long-term potential and should strengthen its position in the aerospace industry.
This month, LMT announced the completion of another successful year of its F-35 program, demonstrating continued expansion of its global footprint and enhanced operational capabilities. Last year, Switzerland and Finland selected the F-35 for their new fighter jet programs, while Denmark received its first F-35 and the Royal Netherlands Air Force became the ninth nation to declare their F-35 fleet ready for Initial Operational Capability.
In December 2021, the company announced a new agreement with RadiSys Corporation (RSYS), a global leader in open telecom solutions, to incorporate Open Radio Access Network (O-RAN) software in Lockheed Martin 5G.MIL™ products. The company expects this collaboration to accelerate the development and deployment of its 5G.MIL™ network capabilities and benefit its defense and national security customers.
LMT’s net sales increased 4.1% year-over-year to $17.73 billion in the fiscal fourth quarter ended December 31. Its operating profit grew 7.3% from the year-ago value to $2.46 billion. Its net earnings came in at $2.05 billion, indicating an improvement of 14.3% year-over-year. Its EPS increased 17.1% from its year-ago value to $7.47.
The consensus revenue estimate of $67.49 billion for the fiscal period ending December 2023 indicates an increase of 2.1% year-over-year, while the consensus EPS estimate of $28.19 indicates a rise of 6% year-over-year. LMT has also topped the consensus EPS estimates in three of the trailing four quarters.
The stock gained 20.9% over the past year and 9.5% over the past month to close its last trading session at $389.13.
It’s no surprise LMT has an overall rating of B, which translates to Buy in our proprietary rating system. The stock is rated a B in Value, Stability, and Quality. It is ranked #2 in the Air/Defense Services industry.
Click here to see the LMT’s Growth, Momentum, and Sentiment ratings.
L3Harris Technologies, Inc. (LHX)
LHX operates as an aerospace and defense technology-based company. It provides mission-critical solutions worldwide. The company’s Integrated Mission Systems segment includes; multi-mission intelligence, surveillance, reconnaissance (ISR) systems, communication systems, and periodic depot maintenance services for ISR and airborne missions.
Last week, The U.S. Marine Corps awarded LHX a competitive 10-year, $750 million single-award IDIQ contract for multi-channel handheld and vehicular radio systems. “This latest award extends our long and successful partnership with the Marines – we are committed to delivering and supporting battle-proven radios that provide secure and resilient communications to meet their unique mission needs,” said Chris Aebli, President, Tactical Communications, LHX.
In December 2021, LHX announced the completion of its critical design review of the U.S. Missile Defense Agency’s (MDA) Hypersonic and Ballistic Tracking Space Sensor (HBTSS) program Phase IIb On-orbit Prototype Demonstration. Given the rising geopolitical tension concerning China and Russia, the company is fast advancing in this project, capable of detecting and tracking traditional and emerging missile threats using infrared sensors and advanced processing capability.
LHX’s net income increased 163% year-over-year to $484 million in the fiscal fourth quarter ended December 31. Its EBIT stood at $655 million, up 110.6% from the prior-year quarter, while its adjusted EBIT margin expanded 70 basis points from the prior-year quarter to 19.2%. Its adjusted free cash flow increased 18.1% year-over-year to $758 million. Also, its adjusted EPS increased 5.1% from its year-ago value to $3.30.
Analysts expect the company’s EPS to increase 5.6% year-over-year to $13.67 for the fiscal year ending December 2022. Moreover, LHX surpassed the consensus EPS estimate in each of the trailing four quarters.
Over the past year, the stock has gained 22% to close its last trading session at $209.29.
LHX’s POWR Ratings reflect its solid fundamentals. The company has an overall rating of B, which translates to Buy in our proprietary rating system. LHX is rated a B in Growth and Quality. It is ranked #5 in the same industry.
Get LHX’s Value, Momentum, Stability, and Sentiment ratings here.
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RTX shares were trading at $90.59 per share on Tuesday afternoon, up $0.40 (+0.44%). Year-to-date, RTX has gained 5.26%, versus a -4.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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