The Republican Party is gearing up to win a majority in Congress in this fall’s elections. Recent polling data shows a greater winning chance for Republicans. Republican control of one or more chambers of Congress could bring major policy changes.
The country’s defense has always been a priority for the Republican party. In December, Republican efforts came to fruition when they managed to give a $25 billion boost to the defense policy bill. So Republican control of Congress could bode well for the defense industry. It might also benefit the publishing industry because people can be expected to tune in to political drama that the Beltway power swap would spell.
Therefore, we think fundamentally strong stocks from the above-mentioned sectors, Elbit Systems Ltd. (ESLT), The New York Times Company (NYT), and CoreCivic, Inc. (CXW), might be solid bets.
Elbit Systems Ltd. (ESLT)
ESLT, based in Haifa, Israel, is a developer and supplier of a portfolio of airborne, land, and naval systems and products for defense, homeland security, and commercial aviation applications. The company sells its systems and products to various governments and companies as prime contractors or subcontractors.
On January 13, ESLT announced that its Swedish subsidiary, Elbit Systems Sweden AB, had been awarded a contract from the Swedish Defense Material Administration to supply the Albatross Combat Management Systems (CMS) for the Royal Swedish Navy, after a competitive tender process. The contract should add to the company’s revenue.
On January 10, ESLT declared that its U.K. subsidiary, Elbit Systems UK Ltd., sold its subsidiary Ferranti Technologies Ltd.'s power and control business for approximately $12 million to TT Electronics (UK) Plc. Martin Fausset, CEO of Elbit Systems U.K., said, "This reorganization is part of our strategy to focus activities on certain areas in order to support the continuous expansion of our operations and collaborations in the U.K."
For its fiscal third quarter, ended September 30, ESLT’s revenues increased 20.2% year-over-year to $1.36 billion. Its non-GAAP gross profit rose 22.6% from the prior-year quarter to $370.70 million. Its non-GAAP net income attributable to ESLT and non-GAAP net EPS improved 41.8% and 42.1%, respectively, from the prior-year period to $103.10 million and $2.33.
The $7.65 consensus EPS estimates for the fiscal year 2021 indicates a 6.3% year-over-year increase. And the $5.02 billion consensus revenue estimate for the same period reflects a 7.7% improvement from the prior year. Furthermore, ESLT has an impressive surprise earnings history; It has topped consensus EPS estimates in three of the trailing four quarters.
The stock has gained 33.2% in price over the past year and 41.2% over the past six months to close the last trading session at $180.25.
ESLT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ESLT has a Growth and Sentiment grade of A and a Value and Stability grade of B. In the 74-stock Air/Defense Services industry, it is ranked #1. Click here to see the additional POWR Ratings for ESLT (Momentum and Quality).
The New York Times Company (NYT)
NYT is a popular news and information provider for readers and viewers across various platforms worldwide. The New York City-based company offers The New York Times (The Times), a daily and Sunday newspaper, and its international edition.
On January 6, NYT announced that it had agreed to acquire a global digital subscription-based sports media business, The Athletic. The transaction is expected to close in the first quarter of 2022 and should boost NYT’s position in sports journalism.
NYT’s total revenues increased 19.3% year-over-year to $509.10 million in its fiscal third quarter, ended Sept. 26. Its adjusted operating profit improved 15.1% from the same period in the prior year to $65.05 million, while its adjusted EPS from continuing operations was $0.23, up 4.5% from the prior-year quarter.
The Street’s $1.20 EPS estimate for its fiscal year 2021 reflects a 23.7% rise year-over-year. And the Street’s $2.06 billion revenue estimate for the same period reflects a 15.5% increase from the prior year. In addition, NYT has topped consensus EPS estimates in each of the trailing four quarters.
NYT’s shares closed the last trading session at $41.68, down 8.6% over the past month.
It is no surprise that NYT has an overall B rating, which translates to Buy in our POWR Ratings system. In addition, the stock has an A grade for Quality and a B grade for Growth. It is ranked #6 out of 11 stocks in the A-rated Entertainment – Publishing industry. Click here to see the additional POWR Ratings for Value, Momentum, Stability, and Sentiment for NYT.
CoreCivic, Inc. (CXW)
CXW in Nashville, Tenn., is the owner and operator of partnership correctional, detention, and residential reentry facilities that operate through the three broad segments of CoreCivic Safety; CoreCivic Community; and CoreCivic Properties. The company’s facilities offer rehabilitation and educational programs.
On January 10, CXW announced that it had been awarded a new contract with the state of Arizona on behalf of the Arizona Department of Corrections, Rehabilitation & Reentry (ADCRR) at the company's La Palma Correctional Center in Eloy, Arizona. The contract marks the largest prison contract that has been awarded to the private sector by any state in over a decade.
On September 21, CXW declared that the company had entered a three-year lease agreement with the state of New Mexico at its Northwest New Mexico Correctional Center. The company is expected to generate fixed payments from the state under the agreement.
For its fiscal third quarter, ended September 30, CXW’s revenues increased 0.6% year-over-year to $471.19 million. Its net income and EPS rose 12.3% and 13.6%, respectively, from the prior-year quarter to $30.01 million and $0.25. And its adjusted EBITDA stood at $100.90 million, up 6.7% from the prior-year period.
Analysts expect CXW’s EPS to increase 204.5% year-over-year to $0.23 for its fiscal fourth quarter of 2021. And the Street expects its revenue to improve 1.6% from the prior-year quarter to $481.27 million for the same period.
Over the past year, the stock has gained 45.9% in price to close the last trading session at $10.71. It has gained 10.5% over the past six months.
This promising outlook is reflected in CXW’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. CXW has a Growth, Value, and Momentum grade of B. In the 49-stock REITs – Diversified industry, it is ranked #3.
In addition to the POWR Rating grades we have stated above, one can see CXW’s ratings for Stability, Sentiment, and Quality here.
ESLT shares were trading at $179.17 per share on Wednesday afternoon, down $1.08 (-0.60%). Year-to-date, ESLT has gained 2.89%, versus a -3.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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