The defense sector is expected to remain steady due to robust defense budgets amid geopolitical issues. So, I think it might be ideal to buy Willis Lease Finance Corporation (WLFC) and CPI Aerostructures, Inc. (CVU), considering their strong fundamentals.
The United States is ranked as the world’s leading defense manufacturer and exporter. The US military expenditure increased by almost 2.9% last year, reaching $801 billion from $778.23 billion the previous year. The United States remained the biggest military spender last year, representing 38% of global spending.
The United States Aerospace and Defense Market is projected to grow at a CAGR of around 2.4% until 2028.
Moreover, the Aerospace & Defense outlook is improving, as favorable demand dynamics should lead to increasing cash flows and deleveraging capacity. Fitch believes commercial aircraft OEMs and suppliers will benefit from strong global demand for new aircraft as the industry continues to recover toward 2018 levels despite global recessionary pressures this year.
With the Russia-Ukraine conflict causing increased geopolitical tensions, several countries increased their defense spending. Amid the persistent threat of terrorism, NATO Secretary-General Jens Stoltenberg urged the 30 member countries to commit to spending at least 2% of their Gross Domestic Product (GDP) on defense.
NATO allies in Europe and Canada increased defense spending for the eighth consecutive year in 2022, adding around $350 billion to their budgets. In addition, according to the budget proposal released recently by the Biden administration, the defense spending would surge to $842 billion in the fiscal year 2024, up 3.2% over 2023.
Take a look at the stocks mentioned above:
Willis Lease Finance Corporation (WLFC)
WLFC operates as a lessor and servicer of commercial aircraft and aircraft engines worldwide. The company operates through two segments, Leasing and Related Operations and Spare Parts Sales.
On February 3, 2023, WLFC announced that its United Kingdom subsidiary, Willis Aviation Services Limited (WASL), has expanded its service offerings to include UK CAA base maintenance approvals for the Airbus A320 family, Boeing 737NG, ATR 42/72, and Embraer 135/145 aircraft.
Its trailing-12-month gross profit margin of 93.70% is 212.2% higher than the 30.01% industry average. Its trailing-12-month net income margin of 9.55% is 48.78.7% higher than the 6.42% industry average.
During the fiscal first quarter ended March 31, 2023, WLFC’s total revenue increased 30.1% year-over-year to $89.54 billion. Its net income attributable to common shareholders came in at $3.57 million, compared to a loss of $22.02 million in the previous-year quarter. Its income per common share came in at $0.55, compared to a negative $3.70 in the previous-year quarter.
WLFC has topped consensus revenue estimates in each of the trailing four quarters, which is impressive.
Shares of WLFC have gained 62.4% over the past year to close the last trading session at $51.87.
WLFC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Quality, and Sentiment. It is ranked #2 out of 71 in the Air/Defense Services industry.
Beyond what is stated above, we’ve also rated WLFC for Value, Stability, and Momentum. Get all WLFC ratings here.
CPI Aerostructures, Inc. (CVU)
CVU engages in the contract production of structural aircraft parts for fixed-wing aircraft and helicopters in the commercial and defense markets.
On April 19, CVU announced that it had received follow-on orders for complex welded structural assemblies used on a U.S. military helicopter from a current customer valued at approximately $3.6 million. Deliveries are expected to occur through mid-2024.
Its trailing-12-month asset turnover ratio of 1.46x is 82.3% higher than the 0.80x industry average. Its trailing-12-month net income margin of 11.01% is 71.4% higher than the 6.42% industry average.
CVU’s revenue came in at $24.1 million in the fourth quarter that ended December 31, 2022. Its net income came in at $6.8 million compared to a net loss of $0.5 million in the previous year quarter. Also, earnings per share came in at $0.55 compared to a loss per share of $0.04.
The stock has gained 42.7% over the past six months to close the last trading session at $3.34.
CVU’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
CVU has an A grade for Growth and Value and a B in Sentiment. It is ranked first in the same industry.
Click here to see the additional POWR Ratings for CVU (Quality, Momentum, and Stability).
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WLFC shares were trading at $52.50 per share on Monday morning, up $0.63 (+1.21%). Year-to-date, WLFC has declined -11.03%, versus a 8.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
2 Defense Stocks Outperforming the Industry StockNews.com
