The air defense industry is set for significant growth, propelled by increased military sales, consistent demand from airlines, ongoing modernization efforts by the U.S. Department of Defense, and advancements in technology.
In light of this, it could be wise to add bullish air defense stocks General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), and Elbit Systems Ltd. (ESLT) to your portfolio for solid returns. Before delving into the featured stocks, let's examine the dynamics of the Air Defense industry.
Last year witnessed American defense firms experiencing a substantial uptick, accumulating $81 billion in new foreign military sales, representing a notable 50% surge from 2022. The increase was primarily driven by Russia's incursion into Ukraine, which prompted significant transactions in the sector.
These transactions comprised $30 billion allocated for attack and transport helicopters, alongside the sale of long-range missile launchers to Poland and Germany. The imperative for NATO to fortify its arsenal in response to Moscow's aggression was the driving force behind these significant deals. On top of it, the Middle-Eastern conflict is also influencing the dynamics of the sector.
That said, Fitch anticipates that aerospace original equipment manufacturers (OEM) and suppliers will reap the rewards of substantial order books and clear revenue visibility. This is expected to be coupled with planned increases in production rates and efforts to reduce inventory, all while managing supply chain obstacles and prioritizing capital deployment strategies.
Fitch predicts consistent revenue and free cash flow expansion for numerous aerospace firms, propelled by persistent demand from airlines seeking to replace or enhance capacity. Aerospace performance is expected to closely align with production and delivery upticks in the coming 12-24 months.
Additionally, the U.S. Department of Defense is projected to sustain modernization expenditure at or above the current heightened levels in 2024. This bolsters Fitch's anticipation of continued top-line growth within the industry and resilience among contractors despite political uncertainties.
Furthermore, non-U.S. demand has surged amid geopolitical apprehensions, prompting nations to bolster budgets and fortify national defense.
Also, the industry is embracing technological advancements to enhance its outlook. This year, edge computing and the Internet of Things (IoT) will assume pivotal roles as A&D firms integrate hybrid multi-cloud platforms to improve the facilitation of connected workers and innovative factory capabilities.
Moreover, in terms of manufacturing, conventional AI will assist companies in streamlining aircraft design processes and automating quality control procedures. This is expected to facilitate easier detection of defects in components and enhance efficiency along production lines.
In light of these trends, let’s look at the fundamentals of the three best Air/Defense Services stocks, beginning with number 3.
Stock #3: General Dynamics Corporation (GD)
GD produces business jets in its Aerospace segment. Its Marine Systems division innovates nuclear-powered submarines, surface combatants, and auxiliary ships. The Combat Systems unit manufactures cutting-edge land combat solutions, while the Technologies segment offers advanced IT solutions and mission support services.
On December 20, 2023, General Dynamics Mission Systems–Canada secured four contracts worth up to CAD 1.68 billion ($1.30 billion) from the Government of Canada to bolster the Land Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) system for the Canadian Army.
By leveraging its established expertise and longstanding relationship with the Canadian Armed Forces, GD stands to bolster its revenue streams and enhance shareholder value, reaffirming its position as a leader in the defense industry.
On November 13, 2023, General Dynamics Information Technology (GDIT), a division of GD, secured a lucrative $2.50 billion indefinite-delivery, indefinite-quantity (IDIQ) contract from the Indian Health Service (IHS) to revamp its electronic health record (EHR) system.
The 10-year agreement, featuring a five-year base period and five option years, could result in significant gains for GD, bolstering its revenue streams and reaffirming its position as a leading provider of cutting-edge technology solutions in the healthcare sector.
For the fiscal 2023 fourth quarter that ended December 31, 2023, GD’s revenue increased 7.5% year-over-year to $11.67 billion. Its operating earnings rose 5% from the year-ago value to $1.29 billion. Moreover, the company’s net earnings and EPS grew 1.3% and 1.7% from the prior year’s period to $1.01 billion and $3.64, respectively.
Analysts expect GD’s revenue to increase 10% year-over-year to $46.50 billion for the fiscal year ending December 2024. The company’s EPS for the current year is estimated to rise 21.9% from the prior year to $14.65. Moreover, GD topped the consensus revenue estimates in all four trailing quarters.
Shares of GD have gained 6.8% over the past month and 21% over the past six months to close the last trading session at $270.00.
GD’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
GD has a B grade for Momentum and Stability. It is ranked #10 out of 72 stocks within the Air/Defense Services industry.
In addition to the POWR Ratings I’ve highlighted, you can see GD’s Growth, Value, Sentiment, and Quality ratings here.
Stock #2: Lockheed Martin Corporation (LMT)
LMT is a security and aerospace corporation that conducts research, designs, develops, manufactures, integrates, and sustains technology systems, products, and services. The company operates through Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space segments.
On February 12, 2024, LMT and Red 6 unveiled a groundbreaking achievement: the successful integration of Red 6's cutting-edge Augmented Reality (AR) training technology with a TF-50 simulator. The milestone, marking the completion of phase one, paves the way for extensive evaluation of AR applications and expedites their incorporation into the TF-50 aircraft design.
By prioritizing pilot readiness while minimizing flight hours, LMT underscores its dedication to meeting customer demands and driving forward 21st-century security solutions.
On February 6, 2024, LMT and MilDef forged a memorandum of understanding (MoU) aimed at enhancing aerospace collaboration, particularly concerning LMT's C-130J-30 Super Hercules tactical airlifter provision for the Swedish Air Force (SwAF).
The partnership aligns LMT's expertise with MilDef's capabilities, bolstering LMT's foothold as it deepens ties with the Swedish industry, thereby stimulating job creation and economic growth.
For the fiscal 2023 fourth quarter that ended December 31, 2023, LMT’s non-GAAP EPS increased 1.4% year-over-year to $7.90. Its cash from operations grew 22.7% from the year-ago value to $2.37 billion. Moreover, the company’s free cash flow rose 34.5% from the prior year’s period to $1.66 billion, respectively.
The consensus revenue estimate of $71.77 billion for the fiscal year ending December 2025 indicates a 3.6% year-over-year growth. Likewise, the consensus EPS estimate of $27.62 for the same period reflects a 6.3% year-over-year increase. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock gained 1.2% intraday to close the last trading session at $423.12.
LMT’s sound fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
LMT has a B grade for Value, Momentum, Stability, and Quality. It is ranked #9 out of 72 stocks within the Air/Defense Services industry.
Click here to access additional LMT ratings for Growth and Sentiment.
Stock #1: Elbit Systems Ltd. (ESLT)
Headquartered in Haifa, Israel, ESLT develops and supplies a range of airborne, land, and naval systems and products for defense, homeland security, and commercial aviation. The company's operations span Aerospace; C4I and Cyber; ISTAR and EW; Land; and Elbit Systems of America segments.
On February 12, 2024, ESLT unveiled its latest Unmanned Aerial System (UAS), designed to tackle the evolving challenges in aerospace and defense. The advanced UAS, with its next-generation digital architecture and multi-mission capability, enhances operational efficiency, potentially boosting ESLT's revenue by catering to diverse mission requirements.
Moreover, with its multi-role platform accommodating flexible payload configurations, ESLT stands to attract lucrative contracts from defense agencies and private entities seeking state-of-the-art solutions, solidifying its financial growth and competitive edge.
On November 29, 2023, ESLT and CN ROMARM S.A, via its subsidiary S Uzina Automecanica Moreni S.A. (UAM), revealed a collaboration in artillery production, showcasing ESLT's strategic expansion efforts. The establishment of a Romanian Artillery Center, with local participation, amplifies ESLT's market reach and reinforces its position as an industry leader.
Moreover, through the production of Elbit Systems' 155mm ATMOS Advanced Mobile Howitzers and the transfer of manufacturing expertise, ESLT stands to secure substantial contracts, boost revenue streams, and foster long-term growth.
For the fiscal 2023 third quarter that ended September 30, 2023, ESLT’s non-GAAP gross profit increased 10.6% year-over-year to $373.80 million. Its non-GAAP operating income grew 38.8% from the year-ago value to $117 million.
Additionally, non-GAAP net income attributable to ESLT shareholders rose 17.4% from the prior year’s period to $73.50 million, while non-GAAP net EPS increased 17.9% year-over-year to $1.65.
Analysts expect ESLT’s revenue to grow 8.1% year-over-year to $6.46 billion for the fiscal year ending December 2024. The company’s EPS for the ongoing year is expected to rise 5.8% from the previous year to $5.67. Furthermore, ESLT surpassed the consensus EPS estimates in three of four trailing quarters.
Over the past year, the stock has gained 24.9%, closing the last trading session at $205.05.
ESLT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
ESLT has an A grade for Stability and a B for Momentum and Sentiment. It is ranked #8 out of 72 stocks within the same industry.
Click here to access the additional ESLT ratings (Growth, Value, and Quality).
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LMT shares were trading at $423.84 per share on Friday morning, up $0.72 (+0.17%). Year-to-date, LMT has declined -6.49%, versus a 5.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Top 3 Bullish Air Defense Stocks to Consider StockNews.com
