The evolving nature of threats necessitates continuous innovation in air defense technologies. As companies in this sector invest heavily in research and development, positioning themselves at the forefront of technological advancements, it can lead to significant growth opportunities to capitalize on newly developed technologies.
In light of the recent Russia-Ukraine geopolitical crisis, the defense sector has experienced a significant upswing in demand and spending. Amid this backdrop, investors might find it favorable to buy fundamentally sound stocks Cadre Holdings, Inc. (CDRE), Willis Lease Finance Corporation (WLFC), and CPI Aerostructures, Inc. (CVU) this month.
Global military spending hit record-high levels last year, with a total of $2.24 trillion being spent worldwide. Out of which, the United States spent $877 billion alone, which is three times more than China, as reported by the Stockholm International Peace Research Institute’s (SIPRI) annual report on global military spending.
The escalating tensions between the United States and China have been prominently observed, with recent events, such as the reported shooting down of a Chinese spy balloon, further exacerbating the situation.
As geopolitical issues prevail, countries are increasingly prioritizing the protection of their territories against potential adversaries, leading to a heightened focus on bolstering air defense capabilities.
Over the forecast period from 2022 to 2030, the global market for air defense systems is projected to witness substantial growth, with estimates indicating a rise to around $65 billion, exhibiting a 5.3% CAGR. The increasing demand for air defense systems and the evolving geopolitical landscape are key factors fueling this expansion in the market.
Also, the global aerospace & defense market grew at a CAGR of 7.5% to reach $855.62 billion in 2023. Further, the market is expected to grow to $1.08 trillion in 2027, increasing at a CAGR of 5.9%.
Considering the current geopolitical landscape, the rising demand for air defense systems, and the projected market growth, let us evaluate the fundamental factors associated with the stocks mentioned above in detail.
Cadre Holdings, Inc. (CDRE)
CDRE is engaged in the manufacturing and distribution of safety and survivability equipment that provides protection to users in hazardous or life-threatening situations. The company operates through Products and Distribution segments. It offers a range of products, including body armor, explosive ordnance disposal equipment, and duty gear.
On May 19, the company paid a quarterly dividend of $0.08 per share to its shareholders. CDRE’s annual dividend translates to a 1.59% yield on the prevailing prices, while its four-year average dividend yield is 1.07%.
On January 18, CDRE’s key brand Safariland introduced the latest advancement in duty-rated retention holsters. The newly developed SafariVault™ represents Safariland's strongest holster body to date and provides exceptional versatility for accommodating optics and lights.
CDRE’s net sales increased 7% year-over-year to $111.75 million in the first quarter (ended March 31, 2023), while its gross profit rose 15.9% from the year-ago value to $46.62 million.
The company’s net income amounted to $7 million and 0.19 per share, compared to a net loss of $10.17 million and 0.30 per share, respectively, in the same period last year. Also, its adjusted EBITDA increased 30.8% from the year-ago value to $18.59 million.
The consensus revenue estimate of $119.12 million for the third quarter (ending September 30, 2023) represents a 6.8% improvement year-over-year. The consensus EPS estimate is expected to be $0.20 for the same period. Moreover, it surpassed the revenue and EPS estimates in three of its trailing four quarters, which is promising.
Its revenue has grown at a 2.9% CAGR over the past three years. Likewise, its total assets have grown at an 8.4% CAGR over the same period.
CDRE’s shares have gained 3.7% over the past five days to close the last trading session at $20.08.
CDRE’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. In the 71-stock Air/Defense Services industry, it is ranked #2. To see additional ratings of CDRE for Value, Momentum, Stability, and Sentiment, click here.
Willis Lease Finance Corporation (WLFC)
WLFC operates as a lessor and servicer of commercial aircraft and aircraft engines globally through two segments: Leasing and Related Operations; and Spare Parts Sales. The company engages in acquiring and leasing commercial aircraft, aircraft engines, and other aircraft equipment, as well as the purchase and resale of commercial aircraft engines, etc.
On February 3, WLFC announced that its United Kingdom subsidiary, Willis Aviation Services Limited, broadened its range of services to include base maintenance approvals from the UK Civil Aviation Authority (CAA) for various aircraft types, such as the Airbus A320 family, Boeing 737NG, ATR 42/72, and Embraer 135/145.
These recent approvals complement WLFC's existing capabilities for line maintenance approved by the UK CAA and the European Union Aviation Safety Agency (EASA) at its facility located at Teesside International Airport in the United Kingdom. This expansion further strengthens WLFC's vertical integration strategy, encompassing engine and aircraft Maintenance, Repair, and Overhaul (MRO) services.
For the first quarter that ended March 31, 2023, WLFC’s total revenue increased 30.1% year-over-year to $89.54 million, while its total expenses declined 13.2% from the prior-year quarter to $81.54 million.
The company’s net income amounted to $4.39 million and 0.55 per share versus a net loss of $21.20 million and $3.70 per share, respectively, in the same period last year. Also, its income from operations stood at $7.99 million in the same period.
WLFC’s EPS is expected to increase by 15% per annum over the next five years. Its revenue has grown at a 4.1% CAGR over the past five years, while its total assets and tang book value have grown at CAGRs of 3.6% and 3.8%, respectively, over the past three years.
Over the past nine months, the stock has gained 13.6% to close the last trading session at $41.01.
WLFC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Sentiment. Within the same industry, it is ranked #4. Click here to see WLFC’s ratings for Momentum, Stability, and Quality.
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. The company also offers Aerosystems, such as reconnaissance pod structures and fuel panel systems; supplies parts for MRO and kitting contracts.
On May 2, CVU received multiple purchase orders of $7.1 million under a previously announced contract from the U.S. Air Force to provide structural modification kits, program management, logistics, and other sustainment services in support of Phase 3 of the T-38C PCIII and TRIM programs.
The new purchase order brings the total funded value of the contract to $38.7 million and extends the currently funded performance period into 2027.
Additionally, on April 19, the company announced that it had received a $3.6 million follow-on order for complex welded structural assemblies used on a U.S. military helicopter, whose deliveries are expected to occur through mid-2024.
Such contracts reflect customers’ continued confidence in CVU’s ability to consistently perform and deliver on assembly operations while effectively managing its supply chain.
During the first quarter that ended March 31, 2023, CVU’s revenue increased 9.3% year-over-year to $22.02 million, while its gross profit improved 35.7% from the prior-year quarter to $4.66 million. The company’s net income amounted to $983.31 thousand, compared to a net loss of $32.93 thousand, while its net income per share stood at $0.08 in the same period.
CVU’s EPS is expected to improve by 9% per annum over the next five years. Its revenue has grown at a 2.3% CAGR over the past five years, while its total assets have grown at a 13.8% CAGR over the past three years.
The stock has gained 22.2% year-to-date to close the last trading session at $3.91.
It’s no surprise that CVU has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Growth and Value and a B for Sentiment and Quality. Out of 71 stocks in the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have CVU’s ratings for Momentum and Stability. Get all CVU ratings here.
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CDRE shares were trading at $20.27 per share on Tuesday afternoon, up $0.19 (+0.95%). Year-to-date, CDRE has gained 1.38%, versus a 14.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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