Aerospace & Defense

Aerojet Rocketdyne, Raytheon Earnings Send Investors Different Stories

Rocket-engine maker Aerojet Rocketdyne Holdings Inc. (NYSE: AJRD) reported second-quarter results on Monday that blew past estimates for both earnings and revenues. Earnings per share (EPS) came in at $0.47, compared to analysts’ consensus estimate of $0.42, and revenues of $512.4 million were well ahead of the Wall Street estimate of $504.3 million.

Tuesday morning, aerospace and defense giant Raytheon Technologies Inc. (NYSE: RTX) reported adjusted EPS of $0.40 and revenue of $14.1 billion. Raytheon’s Collins Aerospace and Pratt & Whitney divisions were particularly hard hit by the decline in commercial air traffic resulting from the COVID-19 pandemic. Operating profit at Collins fell by 125% year over year and P&W’s profit fell by 202%. Sales dropped 36% at Collins and 32% at P&W, builder of the PW1100G geared turbofan engine that powers the Airbus A320neo passenger jet.

The difference in investor reaction was neither subtle nor surprising. Aerojet’s shares traded up by 15% Tuesday morning while Raytheon’s traded down about 1.3%. While Raytheon’s aerospace business relies heavily on commercial aircraft engines and parts, Aerojet’s business relies on defense work, primarily in solid-fuel rocket engines.

Aerojet’s backlog ballooned to $6.8 billion, its highest level ever, and further expansion of the backlog is expected as the company books orders for work on the Department of Defense’s $63 billion overhaul of the nation’s ICBM force. Aerojet announced in February that it had joined prime contractor Northrop Grumman Corp. (NYSE: NOC) to provide solid rocket motors for the Ground Based Strategic Defense program (GBSD).

In addition to the GBSD work, Aerojet is continuing work on a hypersonic engine capable of speeds greater than five times the speed of sound (Mach 5). The company is one of five working on nine hypersonic missile programs. An Aerojet spokesperson said last year that hypersonic weapons are the Pentagon’s “top technical priority.” Russia and China already have demonstrated operational models of these weapons.

SunTrust Robinson Humphrey analyst Michael Ciarmoli, commented in a note Monday that “very little” of Aerojet’s backlog includes work on hypersonic missiles.

Ciarmoli rates the stock a Buy and lifted his price target from $56 to $60 a share based on solid revenue and expected EPS growth.

At Tuesday’s intraday high of $43.41, the stock traded at a multiple of more than 38 to SunTrust’s expected 2020 earnings per share of $1.92 and 26 times expected 2021 earnings per share of $2.31.

At last look, Aerojet shares were up about 14%, at $41.96 in a 52-week range of $34.01 to $57.27. The consensus price target on the stock is $52.50. The company does not pay a dividend.

Raytheon stock traded down about 2% to $59.80, in a 52-week range of $43.44 to $156.33. The consensus price target on the stock is $76.56. Raytheon pays a dividend yield of 3.11% ($1.90 annually).

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