The demand for aerospace and defense products is seeing an unwavering surge owing to the recent geopolitical drifts with Russia’s invasion of Ukraine and conflicts between Israel and Hamas. Also, the growing upgrade activities and adoption of digital technologies are propelling the market’s development.
Given the industry’s robust outlook, it could be wise to invest in fundamentally strong air/defense stocks Northrop Grumman Corporation (NOC), General Dynamics Corporation (GD), and Lockheed Martin Corporation (LMT) with solid backlogs.
With significant increases in F-35 and F-16 purchases, the U.S. Air Force is anticipating its annual foreign military sales to grow by 60% in the current year. Air Force foreign military sales service expects to book over $46 billion in weapon sales in fiscal 2024, up from $28.7 billion in fiscal 2023.
At the same time, the economy is focusing on evolving the U.S. defense industrial base to meet potential future challenges of similar proportions as observed in the conflict between Russia and Ukraine. Further, in a recent conference, officials emphasized the need for allied and partner nations to harness artificial intelligence and develop the space domain to meet complex security challenges.
Amid increasing armed forces’ procurement and upgrade activities to counter emerging threats, the US aerospace and defense market is expected to proliferate. With many contracts currently underway and many new contracts anticipated to be dispersed, the market is expected to grow to $656.93 billion by 2029 at a CAGR of 5.8%.
Significant investments in the existing fleet upgrade, purchasing a new fleet equipped with efficient technologies, and growing adoption of advanced technologies like 3D printing, AI, and big data analytics in developing aviation and defense equipment will contribute to the market and create better opportunities in the coming years.
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: Northrop Grumman Corporation (NOC)
NOC operates as an aerospace and defense technology company internationally. The company operates through the Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems segments.
On August 26, NOC was selected by the U.S. Army to enhance aircraft survivability. NOC is to compete in the first phase of the Improved Threat Detection System program, featuring its Advanced Tactical Hostile Engagement Awareness sensor on an Other Transaction Agreement on behalf of the Consortium for Command, Control, and Communications in Cyberspace (C5).
On August 20, NOC completed the first flight campaign of its Electronically-Scanned Multifunction Reconfigurable Integrated Sensor (EMRIS). The flights were completed in partnership with government partners and on a government-provided aircraft. They demonstrated the open architecture nature of EMRIS by using third-party integration and operation.
Further, on August 12, NOC demonstrated the design and structure of its 2024 Solid Motor Annual Rocket Technology Demonstrator solid rocket motor case via an innovative modular tooling approach for manufacturing large composite solid rocket motor (SRM) cases.
The implementation of modular tooling can potentially reduce SRM development costs and lead times by over 50% by eliminating the procurement of long lead tooling and enabling rapid progression from design to manufacturing.
During the second quarter that ended June 30, 2024, NOC’s total sales rose 6.7% year-over-year to $10.22 billion. Its total operating income grew 12.7% from the year-ago value to $1.09 billion. The company’s net earnings of $940 million and $6.36 per share, indicating growths of 15.8% and 19.1% over the prior-year quarter, respectively.
Furthermore, the company’s free cash flow rose 79.7% from the year-ago value to $1.10 billion. Backlog stood at $83.1 billion.
Street expects NOC’s revenue and EPS for the fourth quarter (ending December 2024) to increase 2% and 3.2% year-over-year to $10.85 billion and $6.47, respectively. Further, the company has topped the consensus EPS and revenue estimates in all of the trailing four quarters.
Shares of NOC have surged 11.9% over the past six months and 19.1% over the past year to close the last trading session at $513.56.
NOC’s solid prospects 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 Momentum and Stability. Within the Air/Defense Services industry, NOC is ranked #16 out of 70 stocks.
Click here to access additional ratings of NOC for Sentiment, Quality, Growth, and Value.
Stock #2: General Dynamics Corporation (GD)
GD operates as an aerospace and defense company globally. The company operates through four segments: Aerospace; Marine Systems; Combat Systems; and Technologies. It produces and sells business jets and provides services like aircraft maintenance, repair, and management.
On August 15, GD’s subsidiary Gulfstream Aerospace Corporation announced the successful first flight of its all-new Gulfstream G400, launching the flight test program and expanding its ultramodern, high-technology family of next-generation aircraft. The aircraft has set new standards with its highest performance, greatest comfort, and enhanced efficiency in the segment.
On August 5, GD’s business unit, General Dynamics Electric Boat, was awarded a $1.3 billion undefinitized contract modification enabling Electric Boat to purchase long lead time materials for Virginia Class Block VI submarines as specified in the U.S. Department of Defense contract award.
Also, on June 7, General Dynamics Land Systems was awarded a contract with its joint venture partner, Marshall Canada, to provide the Canadian Armed Forces with a new fleet of light and heavy logistics vehicles. The granted contract totals $2.58 billion Canadian ($1.88 billion).
GD’s revenue for the second quarter that ended June 30, 2024, increased 18% year-over-year to $11.98 billion. Its operating earnings grew 20.2% from the year-ago quarter to $1.16 billion. The company’s net earnings amounted to $905 million and $3.26 per share, up 21.6% and 20.7% over the prior year’s quarter, respectively.
In addition, the company’s free cash flow rose 18.1% from the year-ago value to $613 million. Company-wide backlog came in at $91.3 billion.
Analysts expect GD’s revenue and EPS for the third quarter (ending September 2024) to increase 15.1% and 22.6% year-over-year to $12.17 billion and $3.73, respectively. Moreover, the company topped the consensus revenue estimates in each trailing four quarters, which is impressive.
GD’s shares have gained 8.1% over the past six months and 31.6% over the past year to close the last trading session at $296.64.
GD’s sound 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.
GD has a B grade for Momentum, Sentiment, Growth, and Stability. Within the same industry, GD is ranked #6 among 70 stocks.
In addition to the POWR Ratings stated above, we also have GD ratings for Quality and Value. Get all GD 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 internationally. It operates through Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space segments.
On August 15, LMT signed a definitive agreement to acquire Terran Orbital Corporation (LLAP), a global leader of satellite-based solutions primarily supporting the aerospace and defense industries. The strategic acquisition reinforces LMT’s commitment to expanding its advanced satellite manufacturing and responsive space capabilities.
On August 9, LMT delivered the first of five C-130J Super Hercules tactical airlifters to the New Zealand Ministry of Defence and New Zealand Defence Force. This embarked upon the enhanced tactical airlift capability for New Zealand.
LMT’s net sales increased 8.6% from the prior year’s quarter to $18.12 billion for the second quarter that ended June 30, 2024, and its consolidated operating profit grew marginally from the year-ago value to $2.15 billion. The company’s adjusted net earnings were $1.70 billion for the quarter. Also, its adjusted EPS of $7.11 reflects a growth of 5.6% from the prior year’s quarter.
Furthermore, the company’s free cash flow increased 95.3% year-over-year to $1.51 billion. Its backlog was nearly $160 billion.
According to the company’s 2024 financial outlook, LMT expects net sales between $70.50 billion and $71.50 billion. Its business segment operating profit is expected to be $7.35 billion - $7.50 billion. Also, the company’s EPS is expected to range from $26.10 - $26.60, and free cash flow is expected to range from $6 billion to $6.30 billion.
Analysts expect LMT’s revenue for the first quarter (ending March 2025) to increase 2.5% year-over-year to $17.63 billion, and its EPS is expected to grow 4.7% year-over-year to $6.63 for the same period. Moreover, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters.
LMT’s stock has soared 30.4% over the past six months and 24.7% over the past year to close the last trading session at $563.98.
LMT’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
LMT has a B grade for Sentiment, Momentum, Stability, and Quality. It is ranked #2 among the 70 stocks in the Air/Defense Services industry.
Click here to access additional LMT ratings for Value and Growth. Top of Form
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LMT shares were trading at $567.31 per share on Thursday afternoon, up $3.33 (+0.59%). Year-to-date, LMT has gained 26.94%, versus a 18.53% 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.
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