Aerospace & Defense

Goldman Sachs Has 4 Top Pick Defense Stocks to Buy for 2021

The analysts noted this about Kratos:

The tactical unmanned portfolio is set to begin a sustained period of growth driven by several ramping programs. Kratos was recently awarded the largest initial task order under the Skyborg program for their Valkyrie drone. We expect them to win substantial funding from subsequent task orders under the contact, but note that there are several programs under which the company could be granted funding. Additional program awards and milestones on other platforms such as Gremlins and Airwolf should solidify market confidence in the growth potential of the product offering. While we expect the tactical portfolio to be the primary driver behind sector-leading organic growth, the business is also exposed to other DoD priority buckets including Space, cyber, and hypersonics.

Goldman Sachs has set a $25 price objective for the shares, which compares with the Wall Street consensus target of $24.40. The last trade on Thursday came in above both levels at $25.09, after almost a 7% gain on the day.

L3 Harris Technologies

This recently merged company is now the sixth-largest defense firm. L3 Harris Technologies Inc. (NYSE: LHX) is an agile global aerospace and defense technology innovator engaged in the provision of defense and commercial technologies across air, land, sea, space and cyber domains.

Its Integrated Mission Systems segment includes intelligence, surveillance and reconnaissance; advanced electro optical and infrared; and maritime power and navigation. The Space and Airborne Systems segment comprises space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare.

The analysts have been very positive on the stock this year and said this about the valuation discount:

The company is situated well in the high growth buckets of the Department of Defense budget, and we believe the business is not as short-cycle as the market has historically perceived. Merger synergies give the business a unique path to cash flow and margin upside along with above average revenue growth. The stock still trades at a meaningful discount to Lockheed Martin and Northrop Grumman despite a more attractive margin profile given the operating leverage of the commercial model.

Shareholders receive a 1.83% dividend. The Goldman Sachs price target is $216, but the $227 consensus figure is slightly higher. L3 Harris Technologies stock was last seen trading at $185.71.

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