Against the backdrop of the Russia-Ukraine conflict, the U.S. defense budget could increase to 3.5% to 4% of GDP, according to BofA Securities.
The Defense Analyst: Ronald Epstein reiterated the ratings for defense stocks while raising their price targets.
- L3Harris Technologies Inc (NYSE:LHX): Buy; Price target raised from $238 to $285.
- Northrop Grumman Corporation (NYSE:NOC): Buy; Price target raised from $520 to $540.
- Lockheed Martin Corporation (NYSE:LMT): Neutral: Price target raised from $410 to $485.
- Huntington Ingalls Industries Inc (NYSE:HII): Buy; Price target raised from $200 to $230.
- General Dynamics Corporation (NYSE:GD): Buy; Price target raised from $250 to $280.
- Raytheon Technologies Corp (NYSE:RTX): Buy; Price target raised from $110 to $115.
The Defense Thesis: The U.S. defense spending is expected to reach $800 billion in fiscal 2023 and exceed $900 billion by fiscal 2025, Epstein said in the note.
“We expect the NATO 'soft' target for defense spending (2% of GDP) to become a 'firm' target or floor. Currently, only four countries meet this target; there are 20+ more to go,” the analyst wrote.
“Our UK analyst Benjamin Heelan expects more governments to announce plans to meet the 2% of GDP NATO targets. The European economics team expects that if all Euro area countries (also those not in NATO) were to reach a 2% spending threshold in terms of Nominal GDP, the additional expenditure would be ~€50-80bn higher in 2022 and €100-120bn higher in 2023,” he added.
Photo: Courtesy Lockheed Martin (on Flickr)
