The aerospace & defense industry doesn’t always receive enough investors’ attention as it doesn’t usually portray growth prospects as solid as that of the tech and other high growth industries. However, considering the current market volatility, on concerns over looming interest rate hikes to control inflation, defense stocks could provide the stability investors’ are looking for, thanks to long-term contracts of these companies with the government.
Moreover, the planned procurement of advanced military equipment to replace the aging equipment currently in service and technological advances are expected to accelerate the growth of the defense sector. According to a Mordor Intelligence report, the U.S. aerospace and defense market is expected to grow at a CAGR of around 2.4% by 2030.
So, aerospace and defense companies Northrop Grumman Corporation (NOC) and L3Harris Technologies, Inc. (LHX) could witness solid growth.
Northrop Grumman Corporation (NOC)
NOC operates as an aerospace and defense company worldwide. It operates through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems. Wells Fargo recently upgraded the stock to Equal-Weight.
On October 28, 2021, Kathy Warden, NOC’s chairman, CEO and president, said, "While we did see some labor related and supply chain challenges stemming from the COVID-19 pandemic on our operations, we delivered solid organic growth, outstanding segment operating margins and strong transaction-adjusted free cash flow in the quarter. We are raising our full year earnings guidance and continue to expect strong organic sales growth."
NOC’s sales declined 4% year-over-year to $16.26 million in the third quarter ended September 30, 2021. However, its operating income grew 5.9% year-over-year to $1.04 billion. Its net earnings came in at $1.06 billion, representing a 7.8% year-over-year increase. The company’s EPS came in at $6.63, up 12.6% year-over-year.
Analysts expect NOC’s EPS to increase 8.3% year-over-year to $25.62 in fiscal 2021. It surpassed the consensus EPS estimates in each of the trailing four quarters. NOC’s revenue is expected to be $9.09 billion for the quarter ending March 31, 2022, representing a 6.5% year-over-year rise. Over the past year, the stock has surged 33.5% to close yesterday’s trading session at $401.63.
It’s no surprise that NOC has an overall A rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value, Sentiment, Stability, and Quality. Click here to see NOC’s ratings for Growth and Momentum as well. NOC is ranked #2 of 74 stocks in the Air/Defense Services industry.
L3Harris Technologies, Inc. (LHX)
Aerospace and defense technology company LHX provides mission-critical solutions for government and commercial customers internationally. The company operates through Integrated Mission Systems; Space and Airborne Systems; and Communication Systems segment. It was recently upgraded to Overweight by WFC.
On December 20, 2021, LHX delivered its fourth imager to NASA, completing the series of advanced weather sensors for NOAA’s newest Geostationary Operational Environmental Satellites. Ed Zoiss, LHX’s President, Space and Airborne Systems, said, "The L3Harris imagers onboard the GOES series of satellites provide revolutionary technology by not only advancing weather observation and environmental monitoring services, but also providing more advanced notice of fires, hurricanes, tornadoes and floods."
The company’s revenue decreased 5% year-over-year to $4.20 billion for the third quarter ended September 30, 2021. Its adjusted EBIT grew 4% year-over-year to $830 million, while its net income increased 11% year-over-year to $479 million. The company’s adjusted EPS increased 13% year-over-year to $3.21.
Analysts expect LHX’s EPS and revenue to increase 5.8% and 0.8% year-over-year to $13.67 and 18.08 billion, respectively, in fiscal 2022. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has surged 21.4% over the past year to close yesterday’s trading session at $228.95.
LHX’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary ratings system. The stock has a B grade for Growth and Quality. Within the Air/Defense Services industry, LHX is ranked #5. Click here to see the additional POWR Ratings for LHX (Value, Momentum, Sentiment, and Stability).
NOC shares were trading at $404.52 per share on Wednesday afternoon, up $2.89 (+0.72%). Year-to-date, NOC has gained 4.51%, versus a -4.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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