The US is ranked as the world’s leading defense manufacturer and exporter. The US Aerospace and defense sector is one of the largest in terms of infrastructure and manufacturing activities. The rising demand for A&D products by both commercial and military end users is primarily driving the industry.
The United States Aerospace and Defense Market is projected to grow at a CAGR of 2.4% during 2023-2028.
In addition, the much anticipated 2023 National Defense Authorization Act authorizes $858 billion in total defense spending and contains several provisions that will interest companies that do business with the U.S. government.
Moreover, the act includes more than $200 million for investments related to aircraft technology, electronic warfare, and 5G technology development and almost $100 million for the Defense Advanced Research Projects Agency’s quantum computing and artificial intelligence programs.
According to Deloitte’s outlook survey, 88% of surveyed senior executives indicated that they believed the general business outlook for the aerospace and defense industry for the year is “somewhat to very positive.” Moreover, the rising geopolitical instability worldwide is creating favorable prospects for U.S. weapon manufacturers.
Given the solid prospects of the industry, fundamentally strong defense stocks Textron Inc. (TXT), Lockheed Martin Corporation (LMT), and General Dynamics Corporation (GD) might be worth keeping on your radar.
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 worldwide. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On January 30, LMT, the Defense Advanced Research Projects Agency (DARPA), Air Force Research Lab (AFRL), and Aerojet Rocketdyne Holdings, Inc. (AJRD) team announced the accomplishment of their primary objectives during its second Hypersonic Air-breathing Weapon Concept (HAWC) flight test doubling the amount of scramjet-powered vehicle data.
John Clark, vice president and general manager of LMT, said,” Both of our HAWC flight tests launched from an operational aircraft and matched performance models and predictions to aid affordable, rapid development of future hypersonic weapons.”
On January 25, LMT and SAP SE (SAP) announced the expansion of their strategic relationship to transform the mission-critical business systems that power LMT’s OneLM Transformation Program (1LMX). The program is an industry-leading business and digital transformation effort that is enhancing the speed, agility, insights, and competitiveness of LMT.
On January 26, LMT announced a quarterly dividend of $3.00 per share, payable on March 24, 2023.
LMT pays $12 annually as dividends, which translates to a yield of 2.56% at the current price. Its 4-year average dividend yield is 2.59%. Its dividend payouts have grown at 8.2% CAGR over the past three years. Also, it has paid dividends for 27 consecutive years.
LMT’s total net sales increased 7.1% year-over-year to $18.99 billion in the fiscal fourth quarter, which ended December 31, 2022. The company’s non-GAAP net earnings rose 1.7% year-over-year to $2.01 billion, while its non-GAAP EPS increased 7.9% year-over-year to $7.79.
Analysts expect LMT’s revenue for the current fiscal first quarter ending March 2023 to be $15.05 billion, indicating a marginal year-over-year growth. The company’s EPS is expected to be $6.12 for the same quarter. Additionally, it has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 18.6% over the past year to close the last trading session at $469.65.
LMT’s POWR Ratings reflect its promising outlook. 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, with each factor weighted to an optimal degree.
LMT also has a B grade for Quality. It is ranked #7 out of 75 stocks in the Air/Defense Services industry.
To access additional ratings for LMT’s Growth, Sentiment, Value, Stability, and Momentum, click here.
General Dynamics Corporation (GD)
GD operates as an aerospace and defense company worldwide. It operates through four segments: Aerospace; Marine Systems; Combat Systems; and Technologies.
On November 10, 2022, GD’s business unit, General Dynamics Information Technology (GDIT), announced that it had formed a coalition with some of the nation’s leading technology and telecommunications conglomerates: Amazon Web Services (AWS), Cisco (CISCO), Dell Technologies (DELL), Splunk and T-Mobile (TMUS), to accelerate the adoption of 5G, advanced wireless and edge technologies across government agencies.
On December 7,2022, GD announced a quarterly dividend of $1.26 per share, payable on February 10.
GD pays $5.04 annually as dividends. This translates to a yield of 2.20% at the current price. Its 4-year average dividend yield is 2.40%. Its dividend payouts have grown at 7.3% and 8.5% CAGRs over the past three and five years, respectively. Also, it has paid dividends for 31 consecutive years.
During the fourth quarter of fiscal 2022, that ended December 31, 2022, GD’s revenues increased 5.4% year-over-year to $10.85 billion. The company’s net earnings rose 4.2% year-over-year to $992 million, and earnings per share increased 5.6% year-over-year to $3.58.
Street’s EPS estimate for the current fiscal quarter (ending March 2023) of $2.71 reflects a rise of 4% year-over-year. Its revenue estimate of $9.47 billion for the same quarter indicates a marginal improvement from the prior-year quarter. Additionally, GD has topped consensus revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters.
The stock has gained 6.8% over the past year, closing the last trading session at $229.12.
It is no surprise that GD has an overall rating of B, which equates to a Buy in our POWR Ratings system.
GD has a B grade for Stability and Value. GD is ranked #4 in the same industry.
In addition to the POWR ratings stated above, we have also rated GD for Growth, Momentum, Quality, and Sentiment. Get all the GD ratings here.
Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses through its five segments: Bell; Textron Aviation; Industrial; Textron Systems; and Finance.
TXT pays $0.08 annually as dividends, which translates to a yield of 0.11% at the current price. Its 4-year average dividend yield is 0.16%. Also, it has paid dividends for 33 consecutive years.
TXT’s total revenue increased 9.5% year-over-year to $3.64 billion in the fourth quarter that ended December 31, 2022. The company’s net income grew 9.2% year-over-year to $226 million. Also, its EPS rose 15.1% year-over-year to $1.07.
TXT’s revenue is expected to rise 5.3% year-over-year to $3.16 billion for the current fiscal first quarter ending March 2023. The company’s EPS for the same quarter is expected to increase 11.9% year-over-year to $0.98. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
TXT has gained 14.4% over the past six months to close its last trading session at $74.23.
TXT’s fundamental strength is reflected in the POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
TXT also has a B grade for Quality, Value, and Sentiment. It is ranked first in the same industry.
Click here to access additional ratings for TXT’s Growth, Stability, and Momentum.
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LMT shares were trading at $471.22 per share on Thursday afternoon, up $1.57 (+0.33%). Year-to-date, LMT has declined -3.14%, versus a 7.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
Defense Stocks to Keep on Your Radar in February 2023 StockNews.com
