Combine a very volatile and dangerous world with the potential for hot spots to break out in numerous locations, with a promise from the U.S. president to upgrade and increase military spending at home. Then, if you add in huge sales to foreign countries looking to upgrade their military capability, you have the perfect storm for the top aerospace and defense companies.
In a series of new reports, the aerospace and defense team at Merrill Lynch raise their price targets on four companies rated Buy that have absolutely been on fire over the past year since the election, and they look to stay that way. All posted solid earnings, and the positive backdrops for the sector still remain very bright for the rest of 2017 and into next year.
Like other major defense prime contractors, this company had a very solid year, and it remains one the best ideas at Merrill Lynch in the space. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.
Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker 8-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.
The company reported third-quarter numbers that were above both the Wall Street and Merrill Lynch estimates. While General Dynamics did report slightly soft revenues, strong margins, particularly at Aerospace and Combat Systems, were very positive. The analysts note that considering the visibility in the company’s revenue pipeline, they expect it to trade in line with defense peers instead of a discount, which it currently does.
Shareholders of General Dynamics are paid a 1.76% dividend. The Merrill Lynch price target for the stock was raised to $245 from $225, and the Wall Street consensus target is $224.53. The stock closed Friday’s trading at $204.99 a share.
This is another of the top aerospace and defense stocks to buy, and many on Wall Street expect 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 four principal business segments: Aeronautics, Missiles and Fire Control, Mission Systems and Training, and Space Systems.
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.
While the company reported third-quarter earnings below the consensus and Merrill Lynch estimates, it raised its 2017 earnings outlook. New revenue recognition will reduce 2017 net sales by approximately 2% from current guidance. The analysts are very positive on the free cash flow and record backlog at the company.
Lockheed Martin investors are paid a 2.6% dividend. Merrill lynch raised its price objective to $360 from $335, and the posted consensus target is $328.84. The shares ended last week at $308 apiece.