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Impressive forecasts for airline earnings, as released by the International Air Transport Association (IATA), bode well for aerospace and defense stocks engaged in private aerospace-related businesses. However, supply chain disruptions in the U.S. defense electronics sector caused by the pandemic remain a threat to aerospace and defense stocks. Nonetheless, the defensive outlook for the aerospace and defense industry remains bright and supported by stable government support, which should keep investors interested in the industry. The frontrunner for the aerospace and defense industry is his Lokchid martin (LMT – free report), airbus group (easy – free report) and general dynamics (GD – free report).
About the industry
Sachs’ Aerospace Defense Industries is a company that primarily designs and manufactures heavy industrial products such as commercial and military jets and helicopters, tankers and other combat vehicles, missiles, combat ships, auxiliary ships, submarines, bombs, guns and space. It consists of Transport vehicles, military satellites, etc. The industry also includes cybersecurity players who provide Information Technology (IT) services and his C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) solutions. A portion of our revenues comes from defense contractors who provide spare parts, aircraft modifications, ship repair and overhaul services, and supply chain management services.
Four trends shaping the future of the aerospace and defense industry
Improved air traffic outlook boost Outlook: A recent recovery in global air traffic data boosts the near-term growth prospects for the industry. As stated in a report published by the International Air Transport Association (IATA) in November 2022, industry-wide revenue per kilogram increased by 41.3% year-on-year. This must have led IATA to expect airline gross revenues to rise to an estimated 93% of pre-pandemic levels in 2023. Jet deliveries are delayed and, in some cases, orders are completely canceled by airlines.
Defense budget expansion remains a catalyst for growth: The commercial aerospace market has recovered steadily over the past few quarters, but the defense side of the industry has held its ground amid the COVID-19 crisis, buffered by steady government support. To this end, it is essential to mention that the US House of Representatives passed her $839 billion National Defense Authorization Act in July 2022. This authorized the U.S. government to spend $37 billion more than President Joe Biden requested in the National Security Budget. Improved budget provisions like this will set the stage for defense business-focused industry players to win more contracts, which should strengthen their top lines.
Supply chain issues can affect: The aerospace and defense industry has recently observed significant supply chain disruptions due to the pandemic-induced drop in demand for aircraft and restrictions on the movement of people and goods. This primarily affected smaller suppliers such as aircraft parts manufacturers, especially those heavily involved in commercial aerospace and aftermarket businesses. The global economy is starting to improve, but prices, including labor, may remain high, according to IATA estimates, as market imbalances linger. This could put some restraint on the growth trajectory of the US aerospace and defense industry in the near future.
Stronger dollar exacerbates industry woes: The recently rising US dollar is adding another layer of costs to airline operations already burdened by high inflation and jet fuel prices. The Federal Reserve’s policy rate is currently at 4.5%, and in 2022 he could start at 0.25% and in 2023 he could peak around 5%, according to IATA reports. All U.S. dollar-denominated costs for airlines earning revenue in non-U.S. currencies are rising. Similarly, the debt burden of all non-dollar-based entities that borrow in dollars has also increased. Such burdens on airlines could lead to a decline in aircraft deliveries, which in turn could hurt aerospace and defense industry players, especially those operating in commercial aerospace.
Sachs industry ranks show bright outlook
The Zacks Aerospace-Defense industry is included in the broader Zacks Aerospace sector. It currently holds the Zacks Industry Rank #80, placing it in the top 32% of over 250 Zacks industries.
The group’s Zacks industry rank, which is essentially the average of the Zacks ranks of all member stocks, shows a positive near-term outlook. Our research shows that the top 50% of industries ranked by Zacks are more than twice as good as the bottom 50%.
Before we dive into some of the aerospace and defense stocks you might want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuations.
Industry outperforms S&P 500 and lags sector
The aerospace and defense industry has outperformed the Zachs S&P 500 Composite over the past year, but underperformed the sector. Stocks in the industry overall fell 7.5% for him, and the aerospace sector fell 0.8% for him. The Zachs S&P 500 Composite fell 11.8% over the above time frame.
1 year price performance.jpg)
Industry Current Rating
Based on the most recent 12-month EV/sales ratio used to value capital-intensive stocks such as aerospace and defense, the industry currently trades at 1.90, compared to 3.36 for the S&P 500 and 2.25 for the sector. being compared.
As the chart below shows, over the past five years the industry has traded at a high of 1.99x, a low of 1.51x and a median of 1.81x.
EV sales ratio TTM
3 aerospace and defense stocks to keep on your watchlist
airbus group: Airbus, based in Mendelweg, the Netherlands, manufactures missile systems, military combat systems for commercial jets, military transports, special mission aircraft, civil and military helicopters, satellites, orbital infrastructure, launchers, and space-related services. develops, manufactures, markets and sells. and a training machine. On 27 January 2023, the company announced that the Air France-KLM Group has placed a firm order for four of his A350F, Airbus’ new widebody freighters. This certainly reflects Airbus’ already strong position in the fast-growing freighter market, fueled by a growing e-commerce business around the world.
The Zachs Consensus estimates for Airbus’ 2022 sales represent a significant improvement of 11% from the reported figures for 2021. The stock also boasts an average four-quarter earnings surprise of 59.88%. EADSY currently has Zacks Rank 2nd (Buy).
Price and Consensus: EADSY
lockheed martin: Lockheed, based in Bethesda, Maryland, is the world’s largest defense contractor focused on information technology, including defense, space, intelligence, homeland security and cybersecurity. The company recently joined forces with the Defense Advanced Research Projects Agency, the Air Force Research Laboratory, and Aerojet, along with his Rocketdyne, Lockheed his Martin to achieve major objectives in his second Hypersonic Air Breathing Weapon Concept (HAWC) flight test. and announced that he had doubled the amount of scramjets. locomotive data. This demonstrates Lockheed’s importance in the booming hypersonic technology market.
Lockheed currently boasts long-term earnings growth of 6.9%. The company delivered an earnings surprise of 6.86% in its last reported quarter. LMT currently holds Zacks Rank #3 (hold).
Price and Consensus: LMT
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general dynamics: General Dynamics, based in Falls Church, Virginia, is a leading designer and builder of nuclear submarines and a leader in the design and construction of surface combatant and auxiliary vessels for the U.S. Navy. It is also a leading manufacturer and integrator of ground combat solutions around the world, along with renowned business his jets. The company announced on January 26, 2023 that he set 25 speed records in his G700 World Tour, which the company’s G700 jet recently completed. This should strengthen General Dynamics’ position in the business jet market.
GD boasts a long-term revenue growth rate of 8.6%. The company has achieved an average earnings surprise of 2.63% in the past four quarters. General Dynamics currently holds Zacks Rank #3.
Price and Consensus: GD
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