Analyst Loves 5 Defense and Aerospace Giants as Tax Reform Plan Winners

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It’s a political hot potato, and the lines are clearly being drawn, but the bottom line is it looks as though the numbers are there for the Republicans to push through the tax reform bill. While it may not be perfect, it is expected to add not only jobs but growth to the economy.

Needless to say, certain sectors will benefit more than others, and those with more of their business, sales and revenues concentrated in the United States likely will reap the larger benefits.

A new research report from the analysts at Baird makes the case that the larger aerospace and defense leaders could be a group to look at that could see among the largest benefits form the new tax levels. They said this in the report:

A lower U.S. corporate tax rate to 20% is particularly beneficial to our large-cap defense coverage names, which generate the bulk of revenue domestically (~76% average for the sector). A lower U.S. corporate tax rate also provides companies a strong incentive to repatriate cash to fund research and development efforts, certain program production expansions, general domestic investment and capital deployment, especially buybacks and mergers and acquisitions.

Five companies stand out in the Baird research universe, and all are rated Outperform.

BWX Technologies

This is an under-the-radar stock with solid upside potential. BWX Technologies Inc. (NYSE: BWXT) primarily supplies U.S. submarines and carriers with naval nuclear reactors and associated nuclear fuel and refueling services, as well as other nuclear components.

Going forward, many analysts feel that the company will benefit from U.S. Navy fleet growth and catalysts in other business segments. These catalysts include missile tubes, the refurbishment of the Canadian nuclear power plants and medical radioisotopes.

The Baird price target for the stock is $70, and the Wall Street consensus target was last seen at $65.38. The stock closed trading on Tuesday at $61.25 a share.

Northrop Grumman

This company was ranked as one of the top five defense contractors by sales last year, and it is also one of Merrill Lynch’s top picks for 2018. Northrop Grumman Corp. (NYSE: NOC) provides innovative systems, products and solutions in unmanned systems, cyber, C4ISR and logistics and modernization to government and commercial customers worldwide.

The Aerospace Systems segment designs, develops, integrates and produces manned aircraft, unmanned systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems.

The Information Systems segment offers advanced solutions for Department of Defense, national intelligence and federal civilian, state, international and commercial customers. It provides products and services primarily in the fields of command and control, communications, cyber, air and missile defense, intelligence processing, civil security, health information technology, and government support systems.

The Technical Services segment provides logistics, modernization, and sustainment services; and other advanced technology and engineering services, including space, missile defense, nuclear security, training, and simulation services.

Shareholders in Northrop Grumman are paid a 1.34% dividend. Baird has a $345 price target for the shares, while the posted consensus target is $324.13. The stock closed trading on Tuesday at $297.75 a share.