The defense and aerospace market is ripe for growth. The defense industry is expected to be worth over $1 trillion by 2027, thanks to increased government spending and investment in advanced technologies. This allows investors to enter the industry while it has room to grow.
This article will cover three defense stocks investors can buy that benefit from bigger government budgets and new contracts. These companies produce aircraft, vehicles, weapons, communications and other defense-related equipment. They also have solid financials and new products in the pipeline and are prepared to hoard profits in the long run.
General Dynamics Corporation (GD)
General Dynamics (NYSE:GD) is the first on our list of defense stocks to buy. It’s an aerospace and defense company with business operations organized into four segments: Aerospace, which produces business jets and provides aircraft services; Marine Systems, which builds ships and submarines for the U.S. Navy and commercial customers; Combat Systems, which manufactures land vehicles, weapons and munitions for military applications; and Technologies, which provides information technology services, communication systems, cloud computing, artificial intelligence (AI) and other solutions to military, intelligence and federal civilian customers.
The Government of Canada has recently awarded General Dynamics Mission Systems-Canada four contracts worth up to $1.68 billion Canadian dollars (US$1.3 Billion) to provide Land Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance system support for the Canadian Army. The contracts cover a range of sustainment and upgrade services related to communications and data systems over multiple years.
General Dynamics reported solid financials for the fourth quarter. The company’s revenue reached a record $11.7 billion, up over 7.5% YoY. Net income rose slightly to $1.005 billion from $992 million, and EPS increased to $3.64 from $3.58 YoY — the highest quarterly EPS in the company’s operating history.
Notably, the company ended the year with a record-high backlog of new orders worth $93.6 billion. Moreover, analysts rate the company a “Strong Buy” with a high price target of $345.
Transdigm Group Inc. (TDG)
TransDigm Group Inc. (NYSE:TDG) produces aircraft components. The company operates through three segments:
- Power & Control: Provides mechanical and electro-mechanical actuators, ignition systems, pumps, valves, power conditioning devices, motors, generators, batteries, databus controls and cargo loading systems;
- Airframe: Offers engineered latching and locking devices, rods, connectors, sealing solutions, cockpit security and display components, interior surfaces, seat belts and restraints, lighting and controls, and parachutes
- Non-aviation: Provides seat belts for ground transportation, actuators for space applications, turbine controls for energy and oil/gas markets and refueling systems for heavy equipment.
TransDigm Group Inc. has recently acquired the Electron Device business of Communications & Power Industries of TJC, L.P. The Electron Device business supplies high-power microwave components to the aerospace, defense, and medical industries.
TDG’s first quarter for FY’24 saw marked growth in several important metrics. Revenue increased 28% YoY, driven by double-digit growth across all segments and markets. Overall, gross profit came in at $1.04 billion, significantly higher than last year’s Q1 profit of $793 million. Adjusted EPS also saw a 56% increase, from $4.58 to $7.16.
TransDigm also laid out an updated 2024 guidance. The company expects revenues to reach between $7.575 billion and $7.775 billion, signifying an 18% increase on the high end from FY’23. This has also increased from the initial $7.48 billion to $7.68 billion range outlined at the end of FY’23.
Finally, analysts maintain a “Strong Buy” rating with a price target of $1,380, representing plenty of potential for investors based on the company’s strong growth and profitability.
AeroVironment, Inc. (AVAV)
AeroVironment (NASDAQ:AVAV) produces high-tech robot systems like drones and unmanned ground vehicles. They sell defense-related equipment, tactical missile systems, and services to the U.S. Department of Defense, federal agencies and friendly international governments. The company has four main business segments that contribute to their overall success, which are:
- Small Unmanned Aircraft Systems
- Tactical Missile Systems
- Medium Unmanned Aircraft Systems
- High Altitude Pseudo-Satellite Systems
AeroVironment successfully demonstrated live-fire tests of GPS-guided Shryke munitions deployed from VAPOR 55 MX dron with Corvid and L3Harris. The modular 40mm warheads struck within 1-2 meters of multiple targets in one flight, which shows a precise and low-collateral damage solution.
AeroVironment recently reported solid second-quarter financial results, with revenue increasing 62% YoY to $180.8 million. Net income rose 366% to $17.8 million, non-GAAP EPS jumped to $0.97, compared to $0.01 YoY, and gross margin increased 191% to $75.4 million for the quarter. Meanwhile, AeroVironment raised its revenue guidance to between $685 million and $705 million for fiscal 2024.
Finally, analysts maintain a “Strong Buy” rating on the stock with a high price target of $155, making it one of the more attractive defense stocks in the market.
On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
