One sector that has lagged over the past year has been aerospace and defense. While the COVID-19 pandemic and the ongoing 737-Max issues weighed heavily on the aerospace side of the sector, the defense side basically was ignored as fund managers started to rotate to cyclical stocks and value plays. The reality is that, in an expensive stock market like we find ourselves in now, the sector may be one of the best ideas not only for the second quarter, but for the rest of the year as well.
In a new research report, Jefferies takes a close look at the sector. While the firm favors the aerospace side, it also have some attractive ideas in the defense world as well. The report noted this:
We favor Commercial Aerospace over Defense and IT Services. With that said, the first quarter will likely provide little in the way of incremental insight into the recovery given the last of tough comparisons. However, confidence behind the 2021 delivery skyline has modestly improved given the 737 MAX delivery cadence and the restart of 787 deliveries in late March.
Three aerospace and two defense stocks are favored now, though one is rated Hold while the others are at Buy. It is still important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Raytheon Technologies Corp. (NYSE: RTX) stock has rallied smartly from 52-week lows but still offers perhaps the best value in the defense and aerospace sector. The company is an industry leader in defense, government electronics, space, information technology and technical services.
With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.
In 2019, United Technologies and Raytheon agreed to merge their businesses to create a new aerospace and defense powerhouse. The two companies received unanimous approval from their respective boards, and the merger is finally complete, with the new company now called Raytheon Technologies.
Shareholders receive a 2.45% dividend. The Jefferies price objective for stock is $90, while the Wall Street consensus target price is $85.06. Raytheon Technologies stock closed on Thursday at $77.48 per share.