As the world grapples with the challenges of an increasingly complex geopolitical landscape, air defense stocks have become a popular investment option for those looking to capitalize on the growing demand for military technology.
With increased defense budgets and rising geopolitical tensions, stable companies such as Lockheed Martin Corporation (LMT), General Dynamics Corporation (GD), and Brady Corporation (BRC), which have positioned themselves as leaders in the industry.
In recent times, the Russia-Ukraine conflict has escalated, leading to an increase in global tensions and a greater focus on defense spending. Last year, global military spending increased by 3.7% to hit a record-high level of $2.24 trillion. Despite heightened inflationary pressures, the United States was the largest contributor, with 39% of total global military spending, three times more than China.
Moreover, the Department of the Air Force FY 2023 budget request increased by 11.7% year-over-year to $194 billion. The Air Force and Space Force budgets of $169.50 billion and $24.50 billion reflected an increase of $13.20 billion and $7.10 billion over last year’s requests.
With several countries investing heavily in military capabilities, there has been a surge in demand for military aircraft in emerging economies to strengthen the defense system. Driven by the launch of better-performing and technologically-advanced aircrafts, the global avionics market is expected to grow at a CAGR of 7.5% by 2030.
Additionally, the global aerospace & defense market grew at a CAGR of 7.5% to reach $855.62 billion in 2023. Further, the market is expected to grow to $1.08 trillion in 2027, increasing at a CAGR of 5.9%.
The significant growth can be attributed to breakthroughs in technologies like Artificial Intelligence (AI), robotics, and the Internet of Things (IoT) that are expected to optimize defense operations and augment military efficiency. Considering these factors, let’s dig deeper into the fundamental strength of the featured stocks in detail.
Lockheed Martin Corporation (LMT)
Security and aerospace company LMT focuses on the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On June 12, LMT collaborated with GlobalFoundries Inc. (GFS) to advance semiconductor manufacturing and innovation for increased security, reliability, and resiliency of domestic supply chains for national security systems. This collaboration enables the company to rapidly produce affordable, secure solutions that increase the competitiveness and national security of the United States.
In addition, both companies’ combined efforts are expected to boost the U.S. semiconductor supply chain for mission-critical security systems in support of the CHIPS and Science Act.
On May 30, LMT signed a Cooperative Research and Development Agreement (CRADA) with the U.S. Army Combat Capabilities Development Command’s Aviation and Missile Center (AvMC) to advance Beyond Line-of-Sight connectivity and improve space-enabled defense systems.
On April 26, LMT’s board of directors authorized a second-quarter 2023 dividend of $3 per share, payable to its shareholders on June 23, 2023. The company’s four-year average dividend yield is 2.57%, and its forward annual dividend of $12 translates to a 2.65% yield.
Its dividends have grown at 7.9% and 8.6% CAGRs over the past three and five years, respectively. Furthermore, LMT has grown its dividends for 20 consecutive years.
LMT’s net sales increased marginally year-over-year to $15.13 billion in the fiscal 2023 first quarter (ended March 26, 2023). Its consolidated operating profit grew 5.4% from the year-ago value to $2.04 billion, while its non-GAAP net earnings amounted to $1.65 billion in the same period. Also, the company’s EPS came in at $6.61, up 2.6% year-over-year.
Street expects LMT’s EPS for the second quarter (ending June 30, 2023) to increase marginally year-over-year to $6.41. Its revenue is expected to increase by 2.3% year-over-year in the current quarter to $15.80 billion. Moreover, the company surpassed the EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 8.7% to close the last trading session at $452.55. Also, it has a five-year beta of 0.67, indicating comparative stability than the broader market.
LMT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, and Quality. Out of 71 stocks in the Air/Defense Services industry, it is ranked #5. Click here to see the other ratings of LMT for Value, Momentum, and Sentiment.
General Dynamics Corporation (GD)
GD is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions, and technology products and services. It operates through four segments: Aerospace; Marine Systems; Combat Systems; and Technologies.
On June 7, the company’s board of directors declared a regular quarterly dividend of $1.32 per share on its common stock, payable to its shareholders on August 11, 2023. GD’s four-year average dividend yield is 2.40%, and its forward annual dividend of $5.28 translates to a 2.49% yield on current prices.
Its dividends have grown at 7% and 8.1% CAGRs over the past three and five years, respectively. Also, GD has a record of 28 years of consecutive dividend growth.
On May 23, General Dynamics Electric Boat, a business unit of GD, announced that it had been awarded a $1.08 billion contract modification from the U.S. Navy to provide long-lead-time material and advanced construction for Virginia-class fast-attack submarines.
On the same day, its subsidiary, General Dynamics NASSCO, was also granted a $736 million modification to the existing T-AO contract for the construction of a ninth ship (T-AO 213) in the John Lewis-class fleet oiler program, bringing the total contract value to approximately $5.5 billion for construction of nine ships.
Such contracts reflect the strong demand for the company’s products and services over its peers.
During the first quarter (ended April 2, 2023), GD’s revenue increased 5.2% year-over-year to $9.88 billion. Its operating earnings rose 3.3% from the year-ago value to $938 million, while its net earnings remained flat year-over-year at $730 million. Also, its EPS stood at $2.64, up 1.1% year-over-year.
In addition, its total current assets of $21.59 billion increased by 2.5%, compared to $21.06 billion for the period that ended December 31, 2022.
Analysts expect GD’s EPS and revenue for the third quarter to increase 2.1% and 5.2% year-over-year to $3.33 and $10.50 billion, respectively. EPS and revenue are expected to reach $12.67 and $41.49 billion in the fiscal year 2023, respectively. Moreover, it topped the EPS estimates in each of the trailing four quarters, which is promising.
The stock has gained marginally over the past month to close the last trading session at $212.14. Additionally, the company has a five-year beta of 0.83.
GD’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Value and Stability. In the same industry, it is ranked #13 of 71 stocks. Click here to see the additional ratings for GD (Growth, Momentum, Sentiment, and Quality).
Brady Corporation (BRC)
BRC is a manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products, and people worldwide. The company operates through two segments: Identification Solutions (IDS); and Workplace Safety (WPS).
On May 17, the company’s board of directors announced a dividend of $0.23 per share, payable on July 31, 2023. BRC’s annual dividend of $0.92 yields 1.89% at the current price level, while its four-year average dividend yield is 1.80%.
Its dividend payouts have increased at a marginal CAGR over the past three years and a 2.03% CAGR over the past five years. Also, it has a record of 16 years of consecutive dividend growth.
For the fiscal third quarter that ended April 30, 2023, BRC’s net sales amounted to $337.12 million, while its gross margin grew 3.5% year-over-year to $169.69 million. Its operating income increased 19.1% from the prior-year quarter to $63 million. The company’s non-GAAP net income and EPS came in at $47.61 million and $0.95, up 7.6% and 10.5% year-over-year.
The consensus EPS estimate of $0.93 for the fiscal fourth quarter (ending July 2023) represents a 14.4% growth year-over-year. The consensus revenue estimate of $331.79 million for the current quarter indicates a 2.4% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of BRC have gained 13.5% over the past nine months to close the last trading session at $48.59. It has a five-year beta of 0.77.
It’s no surprise that BRC has an overall rating of B, which equates to Buy in our proprietary rating system. It also has an A grade for Quality and a B for Stability. Within the same industry, it is ranked #6.
In addition to the POWR Ratings we stated above, we also have BRC’s ratings for Growth, Value, Momentum, and Sentiment. Get all BRC ratings here.
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LMT shares were trading at $458.31 per share on Thursday afternoon, up $5.76 (+1.27%). Year-to-date, LMT has declined -4.56%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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