Several countries enhanced their defense spending with the Russia and Ukraine war causing heightened geopolitical tensions. Among others, the European Union is targeting a €70 billion rise in defense spending over the next three years.
The demand for U.S.-made firearms, military aircraft, explosives, and vehicles has surged significantly. The defense industry is expected to grow further as the U.S. Senate passed legislation to authorize a record $858 billion next year for defense spending, which is $45 billion more than what was proposed by President Biden.
Investors’ interest in defense stocks is evident from the iShares U.S. Aerospace & Defense ETF (ITA) 17.4% returns over the past six months.
Given this backdrop, defense stocks Lockheed Martin Corporation (LMT), General Dynamics Corporation (GD), and Textron Inc. (TXT) could be promising investments thanks to their strong fundamentals and solid growth prospects.
Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company engaging 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.
Over the last three years, LMT’s dividend payouts have grown at an 8.2% CAGR. Its four-year average dividend yield is 2.61%, and its forward annual dividend of $12 per share translates to a 2.49% yield. It is expected to pay a quarterly dividend of $3.00 per share on December 30, 2022.
On November 16, 2022, LMT and Microsoft announced a landmark expansion of their strategic relationship to help power the next generation of technology for the Department of Defense.
LMT’s senior VP, Enterprise Business and Digital Transformation and chief information officer, Yvonne Hodge, believes that the agreement allows the creation of faster, safer, and more affordable 21st Century Security solutions that infuse immersive experiences and other advanced commercial technologies into the most capable defense systems.
LMT’s total assets for the fiscal third quarter ended September 25, 2022, increased 2.3% to $52.03 billion, compared to $50.87 billion for the fiscal year ended December 31, 2021. Its net sales increased 3.5% year-over-year to $16.58 billion, while its adjusted net income came in at $1.82 billion. In addition, its non-GAAP EPS came in at $6.87, representing a 4.1% increase from the prior-year quarter.
Analysts expect LMT’s EPS and revenue for the quarter ending December 31, 2022, to increase 1.7% and 3% year-over-year to $7.37 and $18.27 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 35.6% year-to-date to close the last trading session at $481.79.
LMT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Air/Defense Services industry, it is ranked #5 out of 74 stocks. The company has a B grade for Quality.
Click here to see the additional POWR Ratings of LMT for Growth, Value, Momentum, Stability, and Sentiment.
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.
Over the last three years, GD’s dividend payouts have grown at a 7.6% CAGR. Its four-year average dividend yield is 2.41%, and its forward annual dividend of $5.04 per share translates to a 2.05% yield. It is expected to pay a quarterly dividend of $1.26 per share on February 10, 2023.
GD’s revenue increased 4.3% year-over-year to $9.98 billion for the third quarter ended October 2, 2022. The company’s net earnings increased 4.9% year-over-year to $902 million. In addition, its EPS came in at $3.26, representing a 6.2% increase from the prior-year quarter.
GD’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 4.8% and 3.7% year-over-year to $3.55 and $10.68 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 18.1% year-to-date to close the last trading session at $244.30.
It is no surprise that GD has an overall rating of B, which translates to a Buy in our proprietary rating system. Within the same industry, it is ranked #3. The company has a B grade for Stability and Quality.
Click here to see the additional ratings of GD for Growth, Value, Momentum, and Sentiment.
Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses. It operates through five segments, Textron Aviation, Bell, Textron Systems, Industrial, and Finance.
On April 18, 2022, TXT announced that it had closed its acquisition of Pipistrel, a global leader in electrically powered aircraft. TXT’s Chairman and CEO, Scott Donnelly, said, "We are excited to accelerate Pipistrel’s development and to welcome its talented people into our organization, where we will pool expertise to make Textron a world leader in sustainable aircraft for a wide range of missions."
TXT’s total revenues for the fiscal third quarter ended October 1, 2022, increased 2.9% year-over-year to $3.08 billion. Its net income increased 21.6% year-over-year to $225 million. Additionally, its EPS came in at $1.06, representing a 29.3% increase from the prior-year quarter.
Analysts expect TXT’s EPS and revenue for the quarter ending December 31, 2022, to increase 14.5% and 8.6% year-over-year to $1.08 and $3.61 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 20.8% over the past six months to close the last trading session at $69.28.
TXT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked first in the same industry. The company has a B grade for Value, Sentiment, and Quality.
Click here to see the POWR Ratings of TXT for Growth, Momentum, and Stability.
LMT shares were trading at $489.32 per share on Tuesday afternoon, up $7.53 (+1.56%). Year-to-date, LMT has gained 41.29%, versus a -18.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
The 3 Hottest Defense Stocks to Buy for 2023 StockNews.com
