The defense industry was severely hit by pandemic-related business disruptions and has yet to recover completely. However, it remains a safe haven for investors, with most defense-oriented companies steadily improving their financials. Furthermore, the fiscal 2022 National Defense Authorization Act aims to strengthen the existing “Buy American” policy, which plans to build a domestic workforce capable of supporting the USA’s national security-industrial base, thereby improving the network of defense trade relationships between America and its allies.
According to a Grand View Research report, the global aerospace and defense MRO market is expected to grow at a 14% CAGR from 2021 – 2028. Also, investors’ rising interest in aerospace and defense stocks is evident in the iShares U.S. Aerospace & Defense ETF’s (ITA) 12.5% year-to-date returns.
So, we think it could be wise to bet on fundamentally sound defense stocks Raytheon Technologies Corporation (RTX), Northrop Grumman Corporation (NOC), General Dynamics Corporation (GD), and L3Harris Technologies, Inc. (LHX), which are now trading below their 52-week highs.
Raytheon Technologies Corporation (RTX)
Aerospace and defense company RTX in Waltham, Mass., provides systems and services for commercial, military, and government customers worldwide. It has four segments: Collins Aerospace Systems; Pratt & Whitney; Raytheon Intelligence & Space; and Raytheon Missiles & Defense.
On November 17, 2021, RTX announced new strategic partnerships with the Thurgood Marshall College Fund and the Society of Hispanic Professional Engineers to advance STEM education for students of color. Marie Sylla-Dixon, RTX’s chief diversity officer, said, “By aligning with respected nonprofits such as Thurgood Marshall College Fund and SHPE, we’re taking important steps in developing and diversifying the next generation of engineers for our industry while making progress in reaching our company’s overall DE&I goals.”
RTX’s net sales increased 9.9% year-over-year to $16.21 billion in the third quarter ended September 30, 2021. Its operating profit came in at $1.34 billion, up 209.4% year-over-year. Its net income was $1.39 billion, up 427.7% year-over-year. Also, its EPS was $0.93, up 447.1% year-over-year.
Analysts expect RTX’s revenue and EPS to increase 13.1% and 54.6%, respectively, year-over-year to $64.62 billion and $4.22 for its fiscal year 2021. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 19.3% in price to close yesterday’s trading session at $86.91. It is currently trading 5.9% below its 52-week high of $92.32, which it hit on October 22, 2021.
RTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
RTX has an A grade for Growth, and a B grade for Stability and Sentiment. Within the Air/Defense Services industry, it is ranked #6 of 72 stocks. Click here to see the additional POWR Ratings for Value, Momentum, and Quality for RTX.
Northrop Grumman Corporation (NOC)
An aerospace and defense company, Falls Church, Va.-based NOC operates through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems. The company mainly focuses on global security and human discovery.
On November 10, 2021, NOC completed the critical design review of the Hypersonic and Ballistic Tracking Space Sensor prototype for the U.S. Missile Defense Agency. Sarah Willoughby, Vice President, OPIR and geospatial systems, NOC, said, “This critical design review puts Northrop Grumman on track to deliver a vital component of our missile defense architecture to keep the U.S. and its allies safe against hypersonic threats.”
NOC’s total operating income increased 5.9% year-over-year to $1.04 billion for its fiscal third quarter, ended September 30, 2021. The company’s operating margin rate was 12%, versus 10.8% in the year-ago period. And its net earnings were $1.06 billion, up 7.8% year-over-year. Its EPS increased 12.6% year-over-year to $6.63.
For its fiscal year 2022, analysts expect NOC’s revenue to be $37.03 billion, representing a 2.7% year-over-year rise. The company’s EPS is expected to increase 8.2% year-over-year to $25.60 in fiscal 2021. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 18% to close yesterday’s trading session at $351.42. It is currently trading 13.9% below its 52-week high of $408.03, which it hit on October 25, 2021.
NOC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equals a Strong Buy in our POWR Rating system. Also, the stock has a B grade for Value, Stability, Sentiment, and Quality.
General Dynamics Corporation (GD)
GD operates as an aerospace and defense company worldwide. The Falls Church, Va., company operates through four segments: Aerospace; Marine Systems; Combat Systems; and Technologies. It serves in business aviation, ship construction and repair, land combat vehicles, and other sectors.
On October 27, 2021, Phebe N. Novakovic, Chairman and CEO, said, “The company delivered solid third-quarter results, generating strong cash flow and attractive margins. We continue to focus on delivering solid program performance and ensuring the well-being of our people, who are rising above the challenges of the pandemic to support our customers.”
GD’s revenue increased 1.5% year-over-year to $9.57 billion in the fiscal third quarter ended October 3, 2021. Its net earnings came in at $860 million, up 3.1% from the previous period. Furthermore, its EPS came in at $3.07, up 5.9% year-over-year.
For its fiscal 2022, GD’s revenue and EPS are expected to grow 4.1% and 8.1%, respectively, year-over-year to $40.45 billion and $12.46. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 21.3% in price to close yesterday’s trading session at $198. It is currently trading 5.8% below its 52-week high of $210.21, which it hit on October 22, 2021.
GD’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
In addition, it has a B grade for Value, Stability, and Sentiment. GD is ranked #7 in the Air/Defense Services industry. Click here to see the additional POWR Ratings for GD (Growth, Quality, and Momentum).
L3Harris Technologies, Inc. (LHX)
LHX is an aerospace and defense technology company that provides mission-critical solutions for government and commercial customers worldwide. The company offers advanced defense and commercial technologies across space, air, land, sea, and cyber domains. LHX is headquartered in Melbourne, Fla.
On November 15, 2021, LHX received a $125 million multi-year contract to produce space electronic warfare systems that safeguard U.S. military operations and warfighters. Ed Zoiss, President, Space and Airborne Systems, L3Harris, said, “Successful space operations depend on dominating the electromagnetic spectrum. Denying our enemies the ability to use their space assets protects U.S. warfighter operations.”
LHX’s net income increased 11.4% year-over-year to $479 million in its fiscal third quarter, ended 2021. Its non-GAAP EPS came in at $3.21, up 13% year-over-year. Furthermore, the non-GAAP adjusted EBIT came in at $830 million, up 4% year-over-year.
For its fiscal year 2022, LHX’s revenue is expected to grow 6.8% year-over-year to $8.71 billion. Its EPS is estimated to increase at a rate of 41.8% per annum for the next five years. Over the past nine months, the stock has gained 16.3% in price to close yesterday’s trading session at $220. It is currently trading 10.6% below its 52-week high of $246.08, which it hit on October 22, 2021.
LHX has an overall B rating, which equates to Buy in our proprietary rating system. In addition, it has a B grade for Quality.
Want More Great Investing Ideas?
RTX shares were trading at $85.24 per share on Friday morning, down $1.67 (-1.92%). Year-to-date, RTX has gained 22.09%, versus a 26.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|RTX||Get Rating||Get Rating||Get Rating|
|NOC||Get Rating||Get Rating||Get Rating|
|GD||Get Rating||Get Rating||Get Rating|
|LHX||Get Rating||Get Rating||Get Rating|