Massive Saudi Defense Order Should Boost Top US Companies

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As if the defense and aerospace investors needed more good news, the U.S. State Department recently approved a possible foreign military sale of the Terminal High Altitude Area Defense System (THAAD) to Saudi Arabia. Some top analysts on Wall Street feel that the total package could reach a stunning $15 billion. The deal is part of May 2017 agreement that was made following the president’s visit to the country.

In new research report, Deutsche Bank analyst Myles Walton notes that while the deal still has to proceed through a 30-day congressional review period, the overall size and components are impressive. This was noted in the report:

The THAAD missile defense system, is a land-based system used to intercept and destroy ballistic missiles during the terminal phase of flight and consists of four components: The launcher, interceptors (8 per launcher), radar (AN/TPY-2), and fire controls.

Two top companies are expected to get the majority of the deal, and both are Buy rated at Deutsche Bank. Her we also look at two other top stocks that have big upside potential as well.

Lockheed Martin

This is one of the top aerospace and defense stocks to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

The company operates in five principal business segments: Aeronautics, Missiles and Fire Control, Mission Systems and Training, Space Systems, and Information Systems & Global Solutions.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from a large number of foreign allies of the nation.

Lockheed Martin is expected to be the prime contractor on the Saudi deal, and should get two-thirds of the revenue.

Investors in Lockheed Martin receive a 2.52% dividend. The Deutsche Bank price objective for the shares is $340, and the Wall Street consensus target price is $317.89. The stock closed Wednesday at $318.59 a share.

Raytheon

This company has a diversified mix of businesses and remains a favorite on Wall Street. Raytheon Co. (NYSE: RTN) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.

Top Wall Street analysts feel that the company could be one of the biggest winners as the global threat environment has been heightened substantially this past year, and with 31% of total sales from international sources, the prospects remain very positive. Many cite the Patriot Missile deal signed with Poland as a good example that could propel 2018 earnings.

Raytheon is expected to be the key supplier for the huge Saudi deal, which suggests it will receive a third of the revenue.

Raytheon shareholders are paid a 1.7% dividend. Deutsche Bank has a $210 price objective for stock, while the posted consensus price target $196.44. The shares closed Wednesday at $187.22 apiece.