Aerospace and defense stocks usually perform well during geopolitical disturbances. The nations aiding Ukraine in the fight against Russia have been increasing their defense budgets to stay protected against the consequences of the war. President Joe Biden has committed $3.4 billion in aid to support Ukraine. Moreover, many European countries have pledged to increase defense spending since the beginning of the Russia-Ukraine war. These increased budgets should benefit the aerospace and defense sector.
While fighter aircraft and weapons-makers witnessed a decline in sales in the first quarter due to the sanctions on their top customer ─ Russia, the safe-haven appeal of the sector to investors amid the ongoing geopolitical unrest has led to many stocks in this space outperforming the border market.
The global aerospace and defense market is expected to grow at an 8.5% CAGR to $1.05 trillion by 2026. Therefore, outperforming aerospace and defense stocks L3Harris Technologies, Inc. (LHX), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), Elbit Systems Ltd. (ESLT), and General Dynamics Corporation (GD) could be ideal bets now.
L3Harris Technologies, Inc. (LHX)
LHX is an aerospace and defense technology company that provides mission-critical products and solutions for government and commercial customers worldwide. The company operates through four segments ─ Integrated Mission Systems; Space & Airborne Systems; and Communication Systems. It designs, develops, and manufactures radio communications products and systems, including single channel ground and airborne radio systems, and provides advanced defense and commercial technologies across air, land, sea, space, and cyber domains.
On April 29, 2022, LHX became one of the two vendors awarded a $6 billion-ceiling IDIQ contract to deliver advanced tactical radios under the U.S. Army’s Combat Net Radio (CNR) modernization program. Receiving an initial delivery order of $20 million, LHX will provide a modern SINCGARS radio delivering advanced NSA-approved encryption and resilient waveform communications for the Integrated Tactical Network (ITN). The Combat Net Radio will replace a significant portion of the Army’s legacy SINCGARS radios and increase warfighter effectiveness by enabling communications in all environments and enhancing combat weapon systems. The company had $402 million in cash and cash equivalents as of April 1, 2022.
Analysts expect LHX’s EPS to grow 9.7% year-over-year to $12.86 for its fiscal 2022 ending December 31, 2022. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $16.68 billion for the same fiscal year represents a 3.5% rise from the prior-year period. The company’s EPS is expected to grow at a rate of 41.8% per annum over the next five years. The stock has gained 12.2% year-to-date and closed yesterday’s trading session at $239.25.
LHX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Quality. Click here to see the additional ratings for LHX’s Value, Growth, Stability, Sentiment, and Momentum. LHX is ranked #17 of 76 stocks in the Air/Defense Services industry.
Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company that researches, designs, develops, manufactures, integrates, and sustains technology systems, products, and services worldwide. The company operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space. It also provides management, engineering, technical, scientific, logistics, and information services.
On May 10, 2022, LMT successfully delivered the Spike Non-Line-of-Site (NLOS) missile system on the Oshkosh’s Joint Light Tactical Vehicle (JLTV) to U.S. Special Operations Command (USSOCOM). The combination of Spike NLOS’ long-range and precision-strike capabilities with the JLTV’s superior agility will result in next-level mobility and mission effectiveness for the operators. Its real-time video imagery allows operators to alter or abort missions while en route to a target. This missile system should witness higher demand in the future. The company had $1.88 billion in cash and cash equivalents as of March 27, 2022.
Analysts expect the company’s EPS to hit $26.84 for fiscal 2022 ending December 31, 2022, representing a 17.9% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters. The company’s EPS is expected to improve at an 8.2% rate per annum over the next five years. The stock has gained 23.5% year-to-date to close yesterday’s trading session at $438.84.
LMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Quality. Click here to see the additional ratings for LMT (Growth, Sentiment, Momentum, Value, and Stability). LMT is ranked #9 in the same industry.
Northrop Grumman Corporation (NOC)
NOC is a global aerospace and defense technology company. The company operates through four segments—aeronautics systems; defense systems; mission systems; and space systems. It provides systems, products, and solutions in aerospace, electronics, information systems, and technical services and serves government and commercial customers worldwide.
On April 12, 2022, NOC’s Northrop Grumman Australia entered into an agreement with Australian electronics engineering company IntelliDesign for hardware design services and contract manufacturing of Secure Communications Solution (SCS) devices. NOC’s sovereign SCS-200 capability provides simple, secure network access for deployed teams and individuals. It will also offer IntelliDesign certification accreditation resources and recommendations around protecting its systems and infrastructure from cyber threats. This will help local small to medium businesses in IntelliDesign’s already established supply chain to become part of Australia’s defense industry and to grow the nation’s sovereign industrial capability. The company had $2.17 billion in cash and cash equivalents as of March 31, 2022.
NOC surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $36.53 billion for fiscal 2022 ending December 31, 2022, represents a 2.4% rise from the prior-year period. The company’s EPS is expected to grow at a 6.1% rate per annum over the next five years. The stock has gained 17.3% year-to-date to close yesterday’s trading session at $454.14.
NOC’s POWR Ratings reflect its solid prospects. The stock has a B grade for Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for NOC’s Sentiment, Growth, Momentum, Value, and Quality here. NOC is ranked #20 in the Air/Defense Services industry.
Elbit Systems Ltd. (ESLT)
Based in Haifa, Israel, ESLT develops and supplies a portfolio of airborne, land, and naval systems and products for defense, homeland security, and commercial aviation applications and also performs platform modernization programs internationally. The company markets its systems and products as a prime contractor or subcontractor to various governments and companies.
On March 27, 2022, ESLT was awarded contracts with an aggregate value of approximately $130 million to deliver an artillery munitions production line in a country in Asia-Pacific over a period of 2.5 years. ESLT will build a turnkey industrial complex for enhanced manufacturing of artillery munitions. This will help ESLT expand its reach in the coming months.
For its fiscal year 2021 fourth quarter ended December 31, 2021, ESLT’s revenue increased 8.5% year-over-year to $1.49 billion. The company’s non-GAAP gross profit came in at $381.10 million for the quarter, up 5% from the prior-year period. Its non-GAAP operating income came in at $120.10 million, representing a 5.5% rise from the prior-year period. As of December 31, 2021, the company had $258.99 million in cash and cash equivalents.
Analysts expect the stock’s EPS to improve 6.3% year-over-year to $7.65 for fiscal 2022 ending December 31, 2022. The company surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $5.02 billion for the quarter, representing a 7.7% rise from the prior-year period. ESLT’s EPS is expected to grow at a 10.9% rate per annum over the next five years. The stock has gained 12.7% year-to-date to close yesterday’s trading session at $196.19.
ESLT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Sentiment and Stability. Click here to see the additional ratings for ESLT (Value, Growth, Quality, and Momentum). The stock is ranked #12 in the same industry.
General Dynamics Corporation (GD)
GD is a diversified aerospace and defense company that offers a broad portfolio of products and services in business aviation, combat vehicles, weapons systems, munitions, shipbuilding design and construction, information systems, and technologies. The company operates through four segments ─ Aerospace; Marine Systems; Combat Systems; and Technologies.
On April 27, 2022, GD’s General Dynamics Information Technology (GDIT) business unit was awarded a $661.6 million Environmental Protection Agency (EPA) Managed Application, Infrastructure, Networking, Enterprise, and Security Services (MAINES) task order by the General Services Administration Federal Systems Integration and Management Center. GDIT will offer cloud computing, application platform management, enterprise network, security operations, enterprise identity access management, and cybersecurity. This will allow GD to gain a broad market reach across the industry.
GD revenue for its fiscal 2022 first quarter ended April 3, 2022, increased marginally year-over-year to $9.39 billion. The company’s pre-tax income came in at $849 million, representing a marginal improvement from the year-ago period. While its net earnings increased 3.1% year-over-year to $730 million, its EPS increased 5.2% to $2.61. The company had $2.91 billion in cash and equivalents as of April 3, 2022.
Analysts expect the company’s EPS to reach $12.15 for fiscal 2022 ending December 31, 2022, representing a 5.2% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $39.46 billion for the same fiscal year represents a 2.6% year-over-year improvement. GD’s EPS is expected to grow at an 11.8% rate per annum over the next five years. The stock has gained 10% year-to-date to close yesterday’s trading session at $229.37.
GD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Stability and Sentiment. Click here to see the additional ratings for GD (Momentum, Quality, Growth, and Value). GD is ranked #5 in the Air/Defense Services industry.
LHX shares were trading at $237.68 per share on Tuesday afternoon, down $1.57 (-0.66%). Year-to-date, LHX has gained 11.95%, versus a -15.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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