Given escalating geopolitical tensions leading to increased defense budgets, rapid technological innovations in radar, missile systems, and cyber defense, and modernization programs to upgrade the existing fleet, the aerospace and defense industry is well-positioned to witness significant profitability and expansion.
Therefore, fundamentally sound air defense stocks Northrop Grumman Corporation (NOC), CACI International Inc (CACI), Textron Inc. (TXT), and Huntington Ingalls Industries, Inc. (HII) could be ideal buys for stable returns.
The Department of Defense (DoD) released the President's fiscal year 2025 defense budget request of $849.8 billion to provide the capabilities and investments to advance the Secretary's three key priorities: defending the U.S., taking care of its people, and succeeding through teamwork.
The budget aims to invest in cutting-edge defense capabilities and advance new operational concepts across domains, enabling the department to deepen cooperation with its interagency colleagues, industry, academia, allies, and partners.
The U.S. aerospace and defense market is estimated at $496.56 billion in 2024. Further, the market is projected to reach $656.93 billion by 2029, growing at a CAGR of 5.8% during the forecast period. Factors boosting market growth include armed forces' procurement and upgradation activities to counter emerging threats and significant investments in upgrading existing fleets.
Besides, rapid technological adoption, including hypersonic missile defense systems, quantum radar, AI, machine learning, and 5G, is leading to significant advancements and enhanced capabilities in the industry. The 5G in the defense market is expected to grow at a CAGR of 19.9%, resulting in a market volume of $2.30 billion by 2028.
In light of these encouraging trends, let’s look at the fundamentals of the four best Air/Defense Services, beginning with number 4.
Stock #4: Northrop Grumman Corporation (NOC)
NOC operates as an aerospace and defense technology company internationally. The company operates through Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems segments. It designs, develops, manufactures, integrates, and sustains aircraft systems.
On May 15, NOC’s Board of Directors declared a quarterly dividend of $2.06 per share, payable June 12, 2024, to shareholders of record as of the close of business on May 28, 2024. The dividend reflects an increase of 10% from the prior period. The dividend increase reflects the company’s robust capital structure and its ability to provide stable growth in the long run.
NOC pays an annual dividend of $8.24, which translates to a yield of 1.77% at the current share price. Its four-year average dividend yield is 1.59%. Moreover, the company’s dividend payouts have increased at a CAGR of 9.3% over the past five years. NOC has raised its dividends for 20 consecutive years.
For the first quarter that ended on March 31, 2024, NOC’s total sales increased 8.9% year-over-year to $10.13 billion. Its operating income came in at $1.07 billion, up 13.1% from the prior year’s quarter. The company’s net earnings of $944 million and $6.32 per share indicate growth of 12.1% and 14.9% year-over-year, respectively.
The company reaffirmed its fiscal 2024 guidance. NOC expects sales to be $40.80 billion - $41.20 billion. Its segment operating income is expected to be $4.47 billion - $4.55 billion, and its free cash flow is expected to be between $2.25 billion and $2.65 billion.
Street expects NOC’s revenue and EPS for the second quarter (ending June 2024) to increase 4.7% and 11.6% year-over-year to $10.03 billion and $5.96, respectively. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
NOC’s stock has gained 5.7% over the past year to close the last trading session at $455.50.
NOC’s solid outlook is 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, Stability, and Sentiment. Within the Air/Defense Services industry, NOC is ranked #13 out of 71 stocks.
Click here to access additional ratings of NOC (Growth, Value, and Quality).
Stock #3: CACI International Inc (CACI)
CACI provides expertise and technology to enterprise and mission customers in support of national security missions and government modernization/transformation in the intelligence, defense, and federal civilian sectors. The company operates in two segments: Domestic Operations and International Operations.
On May 20, CACI was selected by the Canadian Armed Forces to deploy counter-uncrewed aerial systems (C-UAS) that will defeat uncrewed aerial vehicle threats, including small drones, which have increasingly become more sophisticated and deadly. CACI will provide dismounted omnidirectional systems (DODS) that are efficient in fielding quickly and ready for use.
On April 22, CACI was awarded a five-year task order worth an estimated value of $1.3 billion to deliver communications and information technology expertise to the U.S. European Command and the U.S. Africa Command. This expands CACI’s current relationship with these two 4-star commands, service component commands, and associated staff elements and organizations.
Also, on March 21, CACI secured a single-award technology task order worth up to $239 million with a one-year base period and four one-year option periods to modernize the U.S. Army’s Global Secure Internet Protocol Router Network. The company’s modernization solutions will enhance the performance, efficiency, and security of the Army’s network infrastructure.
For the third quarter that ended March 31, 2024, CACI’s total revenue grew 11.1% year-over-year to $1.93 billion, and its income from operations increased 16.9% from the year-ago value to $181.30 million. The company’s adjusted net income and EPS came in at $129 million and $5.74, indicating increases of 12.7% and 16.7% from the prior year’s quarter, respectively.
In addition, the company’s EBITDA increased 13.6% year-over-year to $218 million. Its free cash flow rose 148.9% from the prior year’s quarter to $101.90 million.
As per the updated guidance for the fiscal year 2024, CACI expects revenue between $7.50 billion and $7.60 billion, compared to the previous guidance of $7.30 - $7.50 billion. The company’s adjusted net income is expected to be $455 - $465 million. Its adjusted EPS is expected to range from $20.13 to $20.58, up from prior guidance of $19.91 - $20.58.
Analysts expect CACI’s revenue for the fourth quarter (ending June 2024) to increase 12.8% year-over-year to $1.92 billion, and its EPS is expected to grow 12.7% year-over-year to $5.98. For the fiscal year 2024, the company’s revenue and EPS are expected to increase 12.4% and 8.4% year-over-year to $7.54 billion and $20.40, respectively.
Shares of CACI have surged 31.7% over the past six months and 40.9% over the past year to close the last trading session at $423.11.
CACI’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
CACI has a B grade for Sentiment and Stability. The stock is ranked #8 among 71 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CACI’s ratings for Growth, Value, Quality, and Momentum here.
Stock #2: Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses. The company operates through six segments: Textron Aviation; Bell; Textron Systems; Industrial; Textron eAviation; and Finance. It manufactures, sells, and services business jets, turboprop and piston engine aircraft, and military trainer and defense aircraft.
On May 28, TXT’s 400th Cessna Citation Latitude business jet rolled out of production at the company’s factory in Wichita, Kansas, and is anticipated to be delivered later this year. It marks a major milestone and emphasizes the company’s leading position in the midsize business jet market.
On May 27, TXT announced advanced Garmin G5000 avionics enhancements in the best-selling mid-size business jet, the Cessna Citation Latitude, and the flagship of the Citation family of jets, the Citation Longitude.
These investments in the business jets will offer higher performance and improved user experience to pilots in the new Latitude jets beginning in 2025 and the new Longitude jets in 2026.
On May 20, TXT and Kodiak Robotics, Inc., a leading self-driving technology developer for the trucking and defense markets, collaborated to develop an autonomous military ground vehicle specifically designed for driverless operations. This strategic partnership should bode well for both companies.
During the first quarter that ended March 31, 2024, TXT’s total revenues increased 3.7% year-over-year to $3.13 billion. Its segment profit grew 12% from the year-ago value to $290 million. Its adjusted net income came in at $233 million and $1.20 per share, up 6.9% and 14.3% from the prior year’s quarter, respectively. Its total assets stood at $16.41 billion as of March 31, 2024.
As per the company’s outlook for fiscal 2024, TXT expects non-GAAP net income of $1.18 billion - $1.22 billion. Its non-GAAP EPS is expected between $6.20 and $6.40.
Street expects TXT’s revenue for the second quarter (ending June 2024) to increase 3.9% year-over-year to $3.56 billion. Its EPS for the current quarter is expected to grow 2.7% year-over-year to $1.50. Furthermore, the company topped the consensus EPS estimates in three of the trailing four quarters.
TXT’s shares have gained 14.1% over the past six months and 38.7% over the past year to close the last trading session at $87.47.
TXT’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.
The stock has a B grade for Value, Momentum, and Quality. Within the Air/Defense Services industry, TXT is ranked #7 out of 71 stocks.
In addition to the POWR Ratings highlighted above, you can check TXT’s ratings for Stability, Growth, and Sentiment here.
Stock #1: Huntington Ingalls Industries, Inc. (HII)
HII designs, builds, overhauls, and repairs military ships. The company operates in three segments: Ingalls; Newport News; and Mission Technologies. It is involved in the design and construction of non-nuclear ships comprising amphibious assault ships.
On May 15, HII signed a strategic collaboration agreement with Amazon Web Services (AWS). Under the agreement, the company will collaborate on priority solutions for HII’s defense and intelligence customers and fast-track mission-critical capability development.
With the strategic collaboration, HII will augment in the areas of AI and machine learning, edge computing, and cloud migration and modernization, achieving first-time quality in manufacturing and delivering advantages to its customers.
On May 6, HII announced the sale of 3 REMUS 100s and 5 REMUS 300s to the Royal Navy. The transaction marked a significant milestone in the longstanding partnership between HII and the United Kingdom military to support the Royal Navy's capabilities in underwater exploration, countermine, and surveillance programs.
For the first quarter that ended March 31, 2024, HII’s sales and services revenues increased 4.9% year-over-year to $2.81 billion. The company’s operating income was $154 million, up 9.2% from the prior year’s quarter. Its net earnings and EPS grew 18.6% and 19.8% from the year-ago value to $153 million and $3.87, respectively.
As per the fiscal year 2024 financial outlook, HII expects shipbuilding revenue of $8.80 billion - $9.10 billion and mission technologies revenue of $2.70 billion - $2.75 billion. Its free cash flow is expected to range from $600 million to $700 million.
Analysts expect HII’s EPS for the second quarter (ending June 2024) to increase 9.8% year-over-year to $3.59, while its revenue is expected to grow 1.9% year-over-year to $2.84 billion, respectively. Moreover, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters.
Over the past six months, the stock has soared 6.8% and 25.1% over the past year to close the last trading session at $252.75.
HII’s strong prospects are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
HII has an A grade for Value and a B for Momentum. It has ranked #6 among 71 stocks within the same industry.
To see the other ratings of HII for Stability, Growth, Sentiment, and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NOC shares were unchanged in premarket trading Wednesday. Year-to-date, NOC has declined -1.87%, versus a 11.03% 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.
4 Air Defense Stocks With Stable Returns to Buy Now StockNews.com
