Given the issues that the president has with European countries over their participation in the costs for NATO, you can also bet that he would like them to do more business with American defense companies. The Aerospace and Defense sector overall has been very strong for the past few years, and although some companies have backed up some in price, there is a good chance some winners will emerge when second-quarter earnings are released.
In a new research report, Baird feels that there is an upward bias for most of the companies in the sector and that strength could be apparent in the coming earnings reports. The report noted this:
We are previewing 17 companies for the current second quarter 2018 period. Most defense companies should have upside to results as incremental growth from domestic outlays continue to provide tailwinds for earnings and cash flow in the second quarter. Momentum for both aerospace original equipment manufacturers and aftermarket should continue with strong reports.
Baird suggests investors own these four top stocks into the earnings prints. All are rated Overweight at Baird.
This stock has sold off recently and is providing a solid entry point. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined.
The different segments in the company are: Commercial Airplanes; Boeing Defense, Space & Security;, and Boeing Capital, which provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites, and launch vehicles.
Boeing and Embraer signed a nonbinding memorandum of understanding to create a new strategic partnership for commercial aviation. The new joint venture is valued at $4.75 billion, which values Boeing’s 80% share at $3.8 billion.
Shareholders are paid a 2.05% dividend. Baird has a stunning $450 price objective, and the Wall Street consensus target price is $398.13. The stock closed Thursday at $346.03. Boeing is scheduled to report earnings on July 25.
The top defense company was ranked as one of the top five defense contractors by sales last year. 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.