Aerospace & Defense

Massive Saudi Defense Order Should Boost Top US Companies

Northrop Grumman

This top defense company is also rated Buy at Deutsche Bank and looks like outstanding defense play as well. Northrop Grumman Corp. (NYSE: NOC) was ranked as one of the top five defense contractors by sales last year. It 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 company’s Information Systems segment offers advanced solutions for Department of Defense, national intelligence, federal civilian, state, international and commercial customers. This segment 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, as well as other advanced technology and engineering services, including space, missile defense, nuclear security, training and simulation services.

The analysts see the aerospace divisions driving sales and also note the ramp-up in the F-35 fighter production. They also cite the continued B-21 development work as a positive despite the margin headwinds that many feel are factored in.

Northrop Grumman shareholders are paid a 1.36% dividend. The $325 Deutsche Bank price target compares with the consensus price target of $288.11, as well as the most recent closing price of $295.19.

L3 Communications

This is the other Buy-rated Deutsche Bank defense pick with big upside potential. It is also one stock that many analysts like into the third-quarter earnings. L3 Communications Holdings Inc. (NYSE: LLL) provides aerospace systems and a range of communication and electronic systems and products used on military and commercial platforms in the United States and internationally.

The company operates in three segments: Electronic Systems, Aerospace Systems and Communication Systems. It offers a range of products and services, including components, products, subsystems and systems, as well as related services to military and commercial customers in business areas, including precision engagement and training, power and propulsion systems, aviation products and security systems, sensor systems, warrior systems, and optics, telescopes and precision optical subsystems.

L3 Technologies produces electro-mechanical and mechanical fuzes to support missiles and artillery systems that enable for high-speed and high-accuracy sensors. Raytheon’s AIM-9X Sidewinder missiles bolster L3’s fuzing capabilities. They could see some ancillary revenue from the Saudi deal.

Deutsche Bank has set its price objective at $205. The posted consensus target price is $198.43, and the shares ended Wednesday’s trading at $187.66 apiece.

The huge foreign sales, combined with a campaign promise to boost our own military, bode well for the top companies in the defense and aerospace sector. The stocks have had massive runs, and it may make sense to scale-buy stock over a certain period, hoping that the shares can pullback some from current lofty levels.