On December 27, President Biden signed the National Defense Authorization Act or the NDAA into law. The Act authorizes $770 billion in defense spending for fiscal 2022, representing a 5% increase from last year, and contains provisions for more aircraft and Navy ship purchases.
Commercial air travel is in much better shape than expected, which marks a positive sign for the industry. And new technologies, evolving business models, and increasing merger and acquisition activity should create greater operational efficiencies in 2022. The United States aerospace and defense market is expected to grow at a 2.4% CAGR to $550.78 billion in 2030. Moreover, the SPDR S&P Aerospace & Defense ETF (XAR) has gained 8.7% over the past year,
Given this backdrop, we think fundamentally sound stocks Raytheon Technologies Corporation (RTX), Lockheed Martin Corporation (LMT), and Northrop Grumman Corporation (NOC) might be ideal additions to one’s watchlist. These stocks are B (Buy) or A (Strong Buy) rated in our proprietary POWR Rating system.
Raytheon Technologies Corporation (RTX)
RTX in Waltham, Mass., is an aerospace and defense company that provides systems and services for commercial, military, and government customers. The company operates through the broad segments of Collins Aerospace Systems; Pratt & Whitney; Raytheon Intelligence & Space; and Raytheon Missiles and Defense.
On Dec. 7, RTX authorized the repurchase of up to $6 billion of its outstanding common stock. The buybacks are expected to increase shareholder value.
On Dec. 2, RTX business Pratt & Whitney unveiled its GTF Advantage engine. Its addition to the company’s portfolio should add to the company’s revenue stream. RTX also expects to provide greater returns to its customers, both in revenue potential and environmental impact.
For its fiscal third quarter, ended September 30, RTX’s net sales increased 9.9% year-over-year to $16.21 billion. Its adjusted income from continuing operations attributable to common shareowners improved 121.8% from the prior-year quarter to $1.90 billion. And its adjusted EPS rose 125% from the same period prior year to $1.26.
A $1.02 consensus EPS estimate for the last quarter of 2021 (ended December 2021) indicates a 37.8% year-over-year increase. And a $17.26 billion consensus revenue estimate for the same quarter reflects a 4.1% improvement from the prior-year quarter. Moreover, RTX has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 31.6% in price over the past year and 11% over the past month to close yesterday’s trading session at $90.02.
RTX’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. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
RTX has a Growth grade of A and a Stability and Sentiment grade of B. In the 74-stock Air/Defense Services industry, it is ranked #13. Click here to see the additional POWR Ratings for RTX (Value. Momentum, and Quality).
Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company that operates as a researcher, designer, developer, and manufacturer of technology systems, products, and services. The North Bethesda, Md.-based company has four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On Jan 3, LMT reported that its F-35 program expanded its global capabilities and enhanced its operations over 2021. Bridget Lauderdale, Vice-President and General Manager of the F-35 program, said, “Providing unparalleled support to the growing fleet, participating in numerous Joint-All Domain exercises and meeting our delivery target during a global pandemic is no small feat, while the F-35 was also chosen by Switzerland and Finland as their next fighter.”
On Dec. 13, LMT and Radisys, an open telecom solutions provider, announced the establishment of an enterprise agreement for using Radisys’ Open Radio Access Network (O-RAN) software in LMT’s Martin 5G.MIL™ products. The agreement is expected to accelerate the company’s network capabilities deployment.
LMT’s gross profit increased 7.8% year-over-year to $2.30 billion in its fiscal third quarter, ended Sept. 26. Its operating profit rose 6.8% from the prior-year quarter to $2.29 billion. And its cash from operations came in at $1.94 billion, up 3% from the same period the prior year.
Analysts expect LMT’s EPS to increase 10.7% year-over-year to $7.15 for the last fiscal quarter of 2021(ended December 2021). Likewise, Street expects its revenue to improve 3.7% from the prior-year quarter to $17.66 billion for the same quarter. In addition, LMT has topped consensus EPS estimates in three out of the trailing four quarters.
Over the past month, the stock has gained 8.4% in price to close yesterday’s trading session at $361.99. It has gained 2.2% over the past five days.
It is no surprise that LMT has an overall B rating, which translates to Buy in our POWR Rating system. LMT has a B grade for Value, Stability, and Quality. It is ranked #12 in the Air/Defense Services industry. To see the additional POWR Ratings for Growth, Momentum, and Sentiment, click here.
Northrop Grumman Corporation (NOC)
Falls Church, Va.-based NOC, operates through the segments of Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems, and provides aircraft systems for tactical intelligence, weapon and mission systems for the military, radar, electro-optical/infrared, and acoustic sensors.
On Dec. 20, NOC and RTX’s Next Generation Interceptor (NGI) team announced the completion of its System Requirements Review (SRR) of its interceptor and declared that it is proceeding with the initial system design. Regarding this , Scott Lehr, Vice-President and General Manager, launch and missile defense systems, NOC, said, “With our combined workforce, extensive expertise and state-of-the-art facilities, we will deliver a highly capable new interceptor that will protect our nation against long-range missile threats for decades to come.”
On Nov.17, NOC announced a $1.57 per share quarterly dividend on NOC’s common stock, which was payable to shareholders on Dec.15, 2021. This reflects the company’s ability in cash generation.
For its fiscal third quarter, ended Sept. 30, NOC’s operating income increased 5.9% year-over-year to $1.04 billion. Its transaction-adjusted net earnings and transaction-adjusted EPS rose 7.8% and 12.6%, respectively, from the prior-year quarter to $1.06 billion and $6.63.
The Street’s $25.59 EPS estimates for fiscal 2021 indicates an 8.2% year-over-year increase. In addition, NOC has beaten consensus EPS estimates in each of the trailing four quarters.
NOC’s shares have gained 34.7% in price over the past year to close yesterday’s trading session at $396.99. It has gained 10.9% over the past month.
NOC’s promising prospects are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. NOC has a Value, Stability, Sentiment, and Quality grade of B. It is ranked #2 in the same industry.
In addition to the POWR Rating grades we have stated above, one can see NOC ratings for Growth and Momentum here.
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RTX shares were trading at $89.76 per share on Wednesday afternoon, down $0.26 (-0.29%). Year-to-date, RTX has gained 4.30%, versus a -0.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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