The U.S. defense industry is growing at a rapid pace, fueled by rising military and defense budgets, technological advancements, and market domination of U.S. defense companies. These factors contribute to the market’s continuous demand, which will likely continue in the coming years.

Given the industry’s strong outlook, it could be wise to buy fundamentally sound defense stocks TransDigm Group Incorporated (TDG - Get Rating), Northrop Grumman Corporation (NOC - Get Rating), and General Dynamics Corporation (GD - Get Rating) benefiting from increased military spending.

The world recently experienced intense war situations, including the war in Ukraine, the Israeli-Palestinian conflict, and the civil war in Sudan. Such circumstances and outdated infrastructures have urged nations to revisit their military and defense standings and strengthen them, resulting in rapidly surging military spending.

The proposed budget for the Department of Defense in the United States has increased to $850 billion for 2025, reflecting a substantial increase in the past three years from $700 billion. Also, per the 2025 Future Years Defense Program (FYDP), DOD’s budget will increase to $866 billion by 2029, up 1.9% from the current year.

This encouraging trend and growing global demand as economies commit substantial portions of their financial resources to defense should propel the defense market’s growth. Mordor Intelligence expects the U.S. defense market to reach a market value of around $382.56 billion by 2030, growing at a CAGR of 3.6%.

Further, currently, countries are also focused on integrating their defense operations with AI and other advanced technologies to accelerate the speed and detailed design phases and enhance surveillance, security, and training in the defense sector. The global AI in the aerospace and defense market is expected to grow above $65.43 billion by 2034 at a CAGR of 9.9%.

Given the industry’s encouraging prospects, let’s look at the fundamentals of the best three Air/Defense Services stocks, 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 Power & Control segment; Airframe segment; and Non-aviation segment.

Last year, on September 20, TDG’s Board of Directors authorized and declared a special cash dividend of $75 on each outstanding share of common stock and cash dividend equivalent payments on eligible vested options granted under its stock option plans. The special dividend was paid on October 18, 2024.

Also, in July 2024, the company completed the acquisition of Raptor Labs Holdco, LLC, a portfolio company of L Squared Capital Partners, for nearly $655 million in cash, including certain tax benefits.

TDG’s net sales grew 12.1% year-over-year to $2.01 billion for the fourth quarter that ended December 28, 2024. The company’s gross profit increased 18.5% from the year-ago value to $1.23 billion. Also, its EBITDA, as defined, came in at $1.06 billion, up 16.3% from the prior year’s quarter.

Furthermore, adjusted net income was $456 million, reflecting growth of 10.4% over the prior-year period. Also, TDG’s adjusted EPS increased 9.4% year-over-year to $7.83.

Street expects TDG’s revenue for the second quarter (ending March 2025) to increase 13.1% year-over-year to $2.17 billion. Its EPS is expected to grow 10.9% year-over-year to $8.86 for the same period. Also, the company surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.

Over the past year, TDG’s stock has surged 10.8% to close the last trading session at $1290.13.

TDG’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a B grade for Quality and Momentum. Within the Air/Defense Services industry, TDG is ranked #17 of 70 stocks.

Click here to access additional ratings of TDG for Growth, Sentiment, Value, and Stability.

Stock #2: Northrop Grumman Corporation (NOC - Get Rating)

NOC operates internationally as an aerospace and defense technology company, designing, developing, manufacturing, and modernizing aircraft systems. The company operates in four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems.

On February 18, 2025, NOC’s board of directors declared a quarterly dividend of $2.06 per share on the company’s common stock, payable on March 19, 2025, to shareholders of record as of the close of business on March 3, 2025.

NOC pays an annual dividend of $8.24, which translates to a yield of 1.84% at the current share price. Its four-year average dividend yield is 1.55%. Moreover, the company’s dividend payouts have increased at a CAGR of 9.3% over the past three years. NOC has raised its dividends for 21 consecutive years.

On October 9, 2024, NOC launched its next-generation M230 Link Fed (M230LF) Dual Feed Bushmaster® Chain Gun®, which offers two ammunition feed paths for the first time. The 30x113mm medium caliber chain gun is a proven variant of the M230LF chain gun to counter uncrewed aerial threats (C-UAS) and ground engagements.

For the fourth quarter that ended December 31, 2024, NOC’s total sales increased marginally year-over-year to $10.69 billion, of which its sales from the Aeronautics Systems segment rose 10.7% year-over-year to $3.22 billion. The company’s net earnings for the quarter were $1.26 billion, or $8.66 per share, compared to a net loss of $535 million or $3.54 per share during the prior year’s quarter.

Analysts expect NOC’s revenue and EPS for the first quarter (ending March 2025) to increase marginally year-over-year to $10.15 billion and $6.37, respectively. Moreover, the company has topped the consensus EPS estimates in all four trailing quarters.

NOC’s stock plunged 2.6% over the past year to close the last trading session at $447.96.

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

NOC has a B grade for Momentum, Value, and Stability. The stock is ranked #5 out of 70 stocks within the same industry.

In addition to the POWR Ratings we’ve stated above, we also have NOC ratings for Sentiment, Quality, and Growth. Get all NOC ratings here.

Stock #1: General Dynamics Corporation (GD - Get Rating)

GD is an aerospace and defense company operating worldwide. The company operates in four segments: Aerospace; Marine Systems; Combat Systems; and Technologies. The company produces and sells business jets and offers aircraft maintenance and repair, management, aircraft-on-ground support and completion, charter, staffing, and fixed-base operator services.

On December 20, 2024, GD’s business unit, General Dynamics Information Technology, was awarded a $5.60 billion contract by the Air Force Mission Partner Capabilities Office. This single award, indefinite-delivery, indefinite-quantity contract has a five-year base period and a five-year option.

The company will modernize, integrate, operate, and sustain the Department of Defense’s MPE by providing an array of services, which includes mission, cyber, and enterprise IT services and infrastructure.

In the fiscal 2024 fourth quarter that ended on December 31, 2024, GD reported revenue of $13.34 billion, up 14.3% year-over-year. Its operating earnings increased 10.5% year-over-year to $1.42 billion. In addition, the company’s net earnings came in at $1.15 billion or $4.15 per share, indicating increases of 14.2% and 14% year-over-year, respectively.

Street expects GD’s revenue and EPS for the first quarter (ending March 2025) to increase 10.8% and 19.7% year-over-year to $11.89 billion and $3.45, respectively. Furthermore, the company has topped the consensus revenue estimates in three of the four trailing quarters.

Shares of GD have declined 7.8% year-to-date to close the last trading session at $243.06.

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

GD has a B grade for Momentum and Value. It is ranked #4 among 70 stocks within the Air/Defense Services industry.

Other ratings for GD of Growth, Quality, Sentiment, and Stability are also provided, click here to check. 

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TDG shares were trading at $1,316.67 per share on Monday afternoon, up $26.54 (+2.06%). Year-to-date, TDG has gained 3.90%, versus a 2.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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