As the broader stock market struggles in 2018, a half-dozen aerospace and defense stocks are poised to either take off or continue their spectacular upward flight, according to Credit Suisse analyst Robert Spingarn. He expects to see positive upward revisions to earnings or revenue guidance in quarterly reports, which could boost these stocks. He has outperform ratings on stocks including Bombardier Inc. (BDRAF), Booz Allen Hamilton Holding Corp. (BAH), General Dynamics Corp. (GD), L3 Technologies Inc. (LLL), Spirit AeroSystems Holdings Inc. (SPR), according to Barron’s.
|Booz Allen Hamilton||+ 21.5%|
|Spirit AeroSystems||+ 3.0%|
|L3 Technologies||+ 3.0%|
|General Dynamics||– 4.8%|
|S&P 500||+ 5.0%|
Along with positive guidance, Spingarn argues that, at least for the defense sector, their lackluster performance in the first quarter sets the group up for stronger forecasts in the coming quarter. As long as their stock prices are not bid up too much ahead of results, then the stronger forecasts should provide a nice boost. (To read more, see: Defense Stocks Back in Play After Iran Retreat.)
Among the macro factors helping to improve the fundamental picture of both the aerospace and defense industries are the rising geopolitical tensions across the globe. While demand has typically come from the U.S. and Europe, developing nations like India have recently begun boosting defense spending as well. U.S. President Donald Trump has also been a catalyst for a boost in revenue to these sectors, as he does not hold back when it comes to spending on the nation’s security, according to Nasdaq.
Air traffic has also been expanding in emerging markets like Asia over the past several years. Countries like India and Japan have shown an increased demand for commercial-jet fleets. (To read more, see: Defense Stocks Could Rally After North Korea Saber-Rattling.)
While the Canadian-based aeroplane and train manufacturer faced cash and cost problems not long ago, the company has recently made a strong comeback. Stronger demand is translating into ramped-up production of Bombardier’s C Series jet, and the expected rollout of the company’s long-range Global 7500 business jet in the fourth quarter should do well in an improving business-jet market. “Bombardier continues to transition from a corporate survivor to a proactive value [creator],” wrote William Blair analyst Nicholas Heymann in the latter half of June, according to Barron’s.
Having underperformed the market over the past year, General Dynamics should get a boost from the U.S. Congress’ increased spending on the nation’s armed forces. Following a generally positive first quarter, the stock has seen some ups and downs as traders factor in the cash flow problems of the U.S. defense sector in general. Moving forward, analysts are expecting that the company’s recent $9.7 billion acquisition of cybersecurity and data analytics firm CSRA will add $3.6 billion in revenues.
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