Military

Where Do Aerospace and Defense Stocks Go From Here?

Paul Ausick

Published: January 30, 2019 12:55 pm

Last Updated: January 31, 2020 1:16 am

Two of the country’s biggest defense contractors reported fourth-quarter and full-year earnings before markets opened Wednesday morning. One traded up about 5.5% and the other traded down about 5.9% in the first half-hour of the regular session.

As a whole, aerospace and defense stocks have added more than 13% so far in the month of January, more than double the near 6% rise in the S&P 500 index. But results have been mixed for the firms that already have reported, and the outlook is not particularly bright for those that have yet to post earnings.

Here’s a look at eight aerospace and defense firms, along with their share price gains for the year to date, their stock price change since reporting (if they have), and their expected results for the coming year.

Lockheed Martin

Lockheed Martin Corp. (NYSE: LMT) reported fourth-quarter and full-year 2018 results Tuesday that were acceptable but not great. Shares closed up nearly 1.5% on the day and gave back most of that gain on Wednesday. Following yesterday’s earnings report, the stock was maintained as Buy at Argus, with the firm noting that weakness after earnings represents a buying opportunity.

Since January the stock had gained nearly 11% as of Tuesday’s close. Lockheed’s outlook for 2019 calls for revenues in the range of $55.75 to $57.25 billion and diluted EPS of $19.15 to $19.45. Analysts had forecast EPS of $19.55 and revenues of $56.23 billion. Shares traded down about 0.5% Wednesday, at $290.69 in a 52-week range of $241.18 to $363.00. The consensus 12-month price target is $343.37.

Boeing

Boeing Co.’s (NYSE: BA) Wednesday morning earnings announcement added nearly 7% to the company’s 13% year-to-date gain as of Tuesday’s closing bell. Not only that, the aerospace giant has forecast deliveries of around 900 commercial jets this year, topping the 806 it delivered last year. Boeing also forecast 2019 sales and profits well north of analysts’ consensus estimates.

Boeing’s defense, space and security division posted a gain of 13% in full-year revenues, but earnings from operations were down 27% and operating margin was down 3.8%. The fourth quarter showed a year-over-year gain of 16% in revenues, 23% in earnings and 0.6% in margin. For this year, Boeing forecast division revenue growth of 14% to 18% and margin growth to more than 15%. Shares traded up more than 7% in the noon hour Wednesday, at $390.72 in a 52-week range of $292.47 to $394.28. The consensus 12-month price target is $415.71.

General Dynamics

General Dynamics Corp. (NYSE: GD) also reported quarterly and full-year results Wednesday morning, and the news from the tank maker was good. What was less good was the outlook, which fell short of the consensus estimates for earnings per share of $12.04 and revenue of $39 billion for 2019. Neither miss was very big, but close doesn’t count these days. As of last night’s close, the stock was up 12% for the year to date, but it traded down in the late morning Wednesday.

The company also boosted 2018 revenues and profits with its 2018 acquisition of defense IT vendor CRSA. The outlook for IT services is flat for 2019, so if the company is going to see any growth it likely will come from the non-defense Gulfstream private jet market. Shares traded down nearly 4% Wednesday to $169.09, in a 52-week range of $143.87 to $230.00. The consensus 12-month price target is $201.63.

UTC

United Technologies Corp. (NYSE: UTX) reported results last week that included a 73% jump in quarterly profit, largely due to the completion of its merger with Rockwell Collins. Just in time for UTC, as the company is known, to break itself into three pieces: a defense business that includes Pratt & Whitney jet engines as well as Rockwell, the Otis elevator business and the Carrier building-systems business.

The other part of UTC’s good numbers was lower taxes, a bonus that all companies will see disappear this year. Following the earnings report, UTC shares were raised to Sector Perform at RBC, with a price target of $129, while Bank of America and Goldman Sachs reiterated Buy ratings and price targets of $185 and $149, respectively. Shares were up 10.7% for the year to date and traded in the noon hour Wednesday at $119.18, up 1.1% for the day, in a 52-week range of $100.48 to $144.15. The consensus 12-month price target is $140.06.

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Raytheon

Raytheon Inc. (NYSE: RTN) reports quarterly and full-year 2018 results Thursday before the markets open. Analysts expect to see earnings per share of $2.89 on revenues of $7.46 billion for the quarter, as well as full-year earnings of $10.11 per share and revenues of $27.16 billion. Both are solidly better than year-ago results, and the estimates for 2019 are also solid. The biggest piece of Raytheon’s defense business is related to missiles, which could be in for some new federal interest this year.

The most recent analyst action on Raytheon was a maintained Buy rating from Citigroup, with a price target lowered from $230 to $208. Susquehanna initiated coverage in early January with a Positive rating and price target of $187. For the year to date, shares are up 11.7% as of Tuesday’s close. The stock traded down about 0.3% at $170.68 on Wednesday, in a 52-week range of $144.27 to $229.75. The consensus 12-month price target is $207.89.

Northrop Grumman

Northrop Grumman Corp. (NYSE: NOC) also is scheduled to announce 2018 earnings Thursday morning. Analysts are looking for quarterly earnings of $4.32 per share on revenue of $8.12 billion. For the full year, estimates call for earnings of $18.84 per share and revenues of $30.05 billion.

Northrop swallowed up Orbital ATK in 2017 and that boosted both revenues and profits for the aerospace and defense giant, with the addition of a new space component. The company also provides control systems to for Boeing’s F/A-18 fighter and its own B-2 bomber and A-10 Warthog. Most recently, analysts at Credit Suisse reiterated a Buy rating on the stock with a $302 price target. Shares traded down 0.5% Wednesday, at $278.66 in a 52-week range of $223.63 to $360.88. The consensus 12-month price target is $317.05.

L3

L3 Technologies Inc. (NYSE: LLL), a prime contractor for aerospace systems, security and detection systems, and pilot training, reported 2018 results on Tuesday that beat analysts’ estimates and sent shares soaring more than 8% by the session’s close. The boost lifted the stock’s year-to-date gain to nearly 15%, but that pulled back in Wednesday’s trading by nearly a full point.

Following the earnings announcement, Cowen reiterated its Buy rating on the stock with a price target of $250. Other recent ratings include a reiterated Buy rating from Credit Suisse with a price target of $229 and a reiterated Buy rating from Citigroup with a price target that dropped from $224 to $205. L3 shares traded down about 0.7% at around noon, in a 52-week range of $158.76 to $223.73. The consensus 12-month price target is $217.67.

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Huntington Ingalls

Huntington Industries Inc. (NYSE: HII) builds the U.S. Navy’s biggest ships, the Gerald Ford-class aircraft carriers that carry a price tag or around $13 billion per copy. The Navy has ordered four so far, and eventually the new carriers could replace all 11 Nimitz-class carriers currently in the fleet. The company is expected to announce earnings on February 14. Analysts are looking for quarterly earnings of $4.52 per share on revenues of $2.03 billion and full-year per-share earnings of $18.70 on $8.02 billion in revenue.

Last week, Barclays lowered its rating on Huntington stock from Overweight to Underweight and cut its price target from $245 to $215. Citigroup recently kept its Buy rating on the shares but lowered its price target from $260 to $240. Goldman downgraded the stock to Sell in October, with a price target of $208. Shares had gained 8.5% for the year to date as of Tuesday’s close and traded up about 0.4% to $207.24, in a 52-week range of $173.80 to $276.69. The consensus 12-month price target is $244.69.