Increasing space activities, rising military modernization, and increasing investment in the aerospace and defense industry are driving growth in the aerospace industry. Given this backdrop, it could be wise to consider fundamentally strong defense stocks, Textron Inc. (TXT), Elbit Systems Ltd. (ESLT), and Lockheed Martin Corporation (LMT).
Increased global defense spending and ongoing geopolitical tensions boost the military aerospace sector. Governments around the world prioritize upgrading their military capabilities, driving the demand for advanced aircraft and defense technologies.
The global aerospace market is projected to reach $678.17 billion by 2032, growing at a CAGR of 7.8%.
Meanwhile, the U.S. Defense Department's fiscal year 2025 budget request of $849.8 billion includes significant investments in air defense, with $61.2 billion dedicated to strengthening U.S. air superiority. This allocation emphasizes the focus on modernizing and improving air defense capabilities, ensuring the United States retains its dominant air power.
Given these favorable industry trends, let’s look at the fundamentals of the three Air/Defense Services stocks, beginning with the third choice.
Stock #3: Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through six segments: Textron Aviation; Bell; Textron Systems; Industrial; Textron eAviation; and Finance.
On May 27, 2024, TXT announced advanced Garmin G5000 avionics enhancements in the best-selling mid-size business jets, the Cessna Citation Latitude and the Citation Longitude. TXT’s investments in the popular business jets will offer pilots greater performance and improved user experience in the new Latitude jets beginning in 2025 and the new Longitude jets in 2026.
On May 20, 2024, TXT announced that the Federal Aviation Administration (FAA) granted certification of a new Combi interior conversion option for the Cessna SkyCourier turboprop aircraft. The Combi option enables operators to transport nine passengers and cargo simultaneously. Deliveries and the Combi option are expected to begin later this year.
This additional option enables customers to further use it in global markets, including government agencies, law enforcement and militaries, corporations, and humanitarian organizations.
TXT’s trailing-12-month net income margin of 6.75% is 11.3% higher than the industry average of 6.07%. Further, the stock’s trailing-12-month ROCE of 13.37% is 6.4% higher than the industry average of 12.57%. Also, TXT’s trailing-12-month ROTA of 5.67% is 15.3% higher than the industry average of 4.92%.
For the fiscal first quarter that ended March 30, 2024, TXT’s total revenues stood at $3.14 billion, up 3.7% year-over-year. For the same quarter, its adjusted net income and net income per share increased 6.9% and 14.3% from the year-ago quarter to $233 million and $1.20, respectively.
As of March 30, 2024, TXT’s total liabilities amounted to $9.48 billion, compared to $9.87 billion as of December 30, 2023.
Street expects TXT’s EPS and revenue for the quarter ended June 30, 2024, to increase 1% and 2.9% year-over-year to $1.47 and $3.52 billion, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 2.8% over the past five days to close the last trading session at $38.01.
TXT’s solid fundamentals are 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 Value, Momentum, and Quality. TXT is ranked #9 among 71 stocks in the Air/Defense Services industry.
Click here to access additional TXT ratings (Momentum, Growth, and Value).
Stock #2: Elbit Systems Ltd. (ESLT)
Headquartered in Haifa, Israel, ESLT develops and supplies a range of airborne, land, and naval systems and products for defense, homeland security, and commercial aviation. The company’s operations span Aerospace; C4I and Cyber; ISTAR and EW; Land; and Elbit Systems of America segments.
ESLT’s trailing-12-month CAPEX/Sales of 3.75% is 28.5% higher than the industry average of 2.92%.
During the first quarter that ended March 31, 2024, ESLT’s non-GAAP gross profit increased 3.9% year-over-year to $383.40 million. Its non-GAAP operating income grew 12.1% from the year-ago value to $121.60 million. Additionally, non-GAAP net income attributable to ESLT shareholders rose 2.2% from the prior year’s period to $80.70 million, and non-GAAP net EPS increased 1.7% year-over-year to $1.81.
Analysts expect ESLT’s revenue for the quarter ended June 30, 2024, to increase 19.1% year-over-year to $8.32 billion. Its EPS for the quarter ending September 30, 2024, is expected to grow 3.8% year-over-year to $5.15. The company surpassed Street revenue estimates in each of the trailing four quarters, which is impressive.
Shares of ESLT have surged marginally intraday to close the last trading session at $184.
ESLT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
ESLT has an A grade for Sentiment and Stability and a B for Momentum and Value. It is ranked #3 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have ESLT ratings for Growth and Quality. Get all ESLT ratings here.
Stock #1: Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company that engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. The company operates through Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space segments.
On May 20, 2024, LMT announced that their PAC-3 MSE interceptor successfully integrated with the Aegis Weapon System to defeat a cruise missile target in a flight test. This marks the first use of PAC-3 MSE with the Virtualized Aegis Weapon System.
The successful integration demonstrates the capability of the PAC-3 MSE interceptor to work effectively with the advanced Aegis Weapon System. This milestone represents a significant advancement in missile defense technology.
On May 17, 2024, LMT announced a $756 million contract from the U.S. Army to provide additional Long Range Hypersonic Weapon (LRHW) batteries, systems, and support. The LRHW system is designed to deliver highly precise and rapid strikes against time-sensitive targets. This contract further solidifies Lockheed Martin’s position as a leader in advanced weapon systems technology.
In terms of the trailing-12-month net income margin, LMT’s 9.73% is 60.4% higher than the 6.07% industry average. Likewise, its 21.83% trailing-12-month Return on Total Capital is 205% higher than the industry average of 7.16%. Also, the stock’s 1.27x trailing-12-month asset turnover ratio is 62% higher than the industry average of 0.78x.
LMT’s net sales for the fiscal first quarter that ended March 31, 2024, grew 13.7% year-over-year to $17.20 billion. Also, its aeronautics net sales increased 9.2% year-over-year to $6.85 billion. Likewise, the company’s non-GAAP net earnings stood at $1.53 billion, while its non-GAAP EPS came in at $6.33. Moreover, its cash from operations rose 4.5% year-over-year to $1.63 billion.
Analysts expect LMT’s revenue for the quarter ended June 30, 2024, to increase 1.8% year-over-year to $16.99 billion. Its EPS for the fiscal 2025 is expected to grow 6% year-over-year to $27.82. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 14.3% to close the last trading session at $466.03.
LMT’s POWR Ratings reflect its outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Quality, Value, Stability, and Momentum. Within the same industry, LMT is ranked #2.
Click here to access additional ratings of LMT for Growth and Sentiment.
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LMT shares were trading at $466.03 per share on Wednesday afternoon, up $0.33 (+0.07%). Year-to-date, LMT has gained 4.27%, versus a 16.76% 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.
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