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3 Aerospace-Defense Stocks to Buy Amid Persistent Supply-Chain Issues
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Improving defense funding from the U.S. administration should bode well for aerospace-defense companies that are primarily engaged in the combat space. However, consistent supply-chain issues are expected to continue to adversely impact jet deliveries and remain a threat to the industry players. Nevertheless, impressive year-over-year projections for global air passenger numbers can be expected to boost companies in the aerospace defense industry, particularly those that operate in commercial aerospace. The frontrunners in the aerospace-defense industry that you may add to your portfolio are Leidos Holdings (LDOS - Free Report) , Archer Aviation (ACHR - Free Report) and Intuitive Machines (LUNR - Free Report) .
About the Industry
The Zacks Aerospace-Defense industry comprises companies that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.
The industry also includes cyber security players that offer information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions. A portion of its revenues comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply-chain management services.
3 Trends Shaping the Future of the Aerospace-Defense Industry
Improved Air Traffic Outlook Boosts Prospects: Steadily improving global air traffic data in recent times has been boosting the near-term growth prospects of the industry. As stated in the latest report published by the International Air Transport Association (IATA), industry-wide global revenue-passenger kilometers (RPKs) increased a solid 7.1% year over year in September 2024. Looking ahead, IATA projects the number of global air passengers to grow 10.4% in 2024 from the 2023 level (as per IATA’s latest outlook published in June 2024). Such impressive projections bode well for commercial aerospace manufacturers that have long borne the brunt of poor air travel in the form of delayed jet deliveries and, in some cases, cancellation of orders by airlines.
Expanding Defense BudgetRemains a Growth Catalyst: While the commercial aerospace market overcame the woes of the pandemic and has been growing steadily over the past couple of quarters, the defense side of the industry stood its ground amid the COVID-19 crisis, cushioned by steady government support. To this end, it is imperative to mention that in August 2024, the U.S. Senate Committee on Appropriations approved the Fiscal Year (FY) 2025 Defense Appropriations Act, which provides $852.2 billion in total funding. This reflects a 3.3% increase over the approved funding during fiscal 2024. Such improved funding provisions set the stage for industry players focused on the defense business to win more contracts and expand their production volume, which is likely to boost their top line.
Supply-Chain Issues May Hurt: Significant supply-chain disruptions adversely impacted the Aerospace and Defense industry, thanks to the pandemic-induced lower aircraft demand and restrictions on the movement of people and goods. This primarily affected small suppliers like aircraft part manufacturers, especially those with heavy exposure to commercial aerospace, and the aftermarket business.
Although the global economy has been improving, the persisting supply-chain issues continue to be a challenge as it has been limiting the number of deliveries. In its June 2024 report, the IATA stated that an inventory of 38.7 million flights is expected to be available in 2024. This reflects a decline of 1.4 million flights from its previous estimate made in December 2023. This decline can be largely attributed to the slowing pace of deliveries in the face of persistent supply-chain issues in the aerospace sector. This, in turn, might constrict the growth trajectory of the U.S. Aerospace and Defense industry to some extent in the near term.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #138, which places it in the bottom 45% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved down 37.5% to $3.03 since Aug. 31.
Before we present a few aerospace-defense stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Aerospace-Defense industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively lost 2.5% against the Aerospace sector’s growth of 6.9%. The Zacks S&P 500 composite has gone up 30.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/Sales ratio, which is used for evaluating capital-intensive stocks like aerospace-defense, the industry is currently trading at 2.22 compared with the S&P 500’s 5.40 and the sector’s 2.45.
Over the past five years, the industry has traded as high as3.11X, as low as 1.53X and at the median of 2.50X, as the charts show below.
EV-Sales Ratio TTM
3 Aerospace-Defense Stocks to Keep in Your Portfolio
Leidos Holdings: Based in Reston, VA, Leidos is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors and systems engineering. On Nov. 12, 2024, the company announced that it has partnered with the University of Edinburgh in the United Kingdom to advance artificial intelligence (AI) and data science solutions. The partnership will leverage the university's Bayes Centre, an innovation hub for data science and AI, to address critical challenges in areas such as environmental, civil, healthcare and national security. The partnership underscores Leidos' commitment to build AI that delivers high-quality outcomes while scaling efficiently.
The Zacks Consensus Estimate for Leidos’ 2024 sales implies an improvement of 6% from the 2023 reported figure. LDOS boasts a long-term earnings growth rate of 14.8%. It currently carries a Zacks Rank #1 (Strong Buy).
Price & Consensus: LDOS
Archer Aviation: Based in San Jose, CA, Archer Aviation designs and develops electric vertical takeoff and landing aircraft for urban air mobility. On Nov. 7, 2024, the company released its third-quarter 2024 results. ACHR completed the quarter with $501.7 million of cash and cash equivalents. Its operating expenses increased 26.1% year over year to $122.1 million.
The Zacks Consensus Estimate for the company’s 2024 earnings, pegged at a loss of 89 cents per share, suggests a solid improvement from the year-ago quarter’s reported loss of $1.52. The consensus mark also implies an improvement of 7.1% from the 2023 reported figure. The stock boasts a four-quarter average earnings surprise of 6.89%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ACHR
Intuitive Machines: Based in Houston, TX, Intuitive Machines is a space exploration company that supplies space products and services to support sustained robotic and human exploration. On Nov. 14, 2024, the company announced its third-quarter 2024 results. Its revenues improved a solid 359% year over year to $58.5 million, while its operating loss improved from the year-ago quarter’s $24 million to $13.7 million.
Intuitive Machines boasts a four-quarter average earnings surprise of 34.5%. The Zacks Consensus Estimate for the company’s 2024 sales indicates an improvement of 189.6% from the 2023 reported figure. LUNR currently carries a Zacks Rank #2.
Price & Consensus: LUNR
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3 Aerospace-Defense Stocks to Buy Amid Persistent Supply-Chain Issues
Improving defense funding from the U.S. administration should bode well for aerospace-defense companies that are primarily engaged in the combat space. However, consistent supply-chain issues are expected to continue to adversely impact jet deliveries and remain a threat to the industry players. Nevertheless, impressive year-over-year projections for global air passenger numbers can be expected to boost companies in the aerospace defense industry, particularly those that operate in commercial aerospace. The frontrunners in the aerospace-defense industry that you may add to your portfolio are Leidos Holdings (LDOS - Free Report) , Archer Aviation (ACHR - Free Report) and Intuitive Machines (LUNR - Free Report) .
About the Industry
The Zacks Aerospace-Defense industry comprises companies that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.
The industry also includes cyber security players that offer information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions. A portion of its revenues comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply-chain management services.
3 Trends Shaping the Future of the Aerospace-Defense Industry
Improved Air Traffic Outlook Boosts Prospects: Steadily improving global air traffic data in recent times has been boosting the near-term growth prospects of the industry. As stated in the latest report published by the International Air Transport Association (IATA), industry-wide global revenue-passenger kilometers (RPKs) increased a solid 7.1% year over year in September 2024. Looking ahead, IATA projects the number of global air passengers to grow 10.4% in 2024 from the 2023 level (as per IATA’s latest outlook published in June 2024). Such impressive projections bode well for commercial aerospace manufacturers that have long borne the brunt of poor air travel in the form of delayed jet deliveries and, in some cases, cancellation of orders by airlines.
Expanding Defense Budget Remains a Growth Catalyst: While the commercial aerospace market overcame the woes of the pandemic and has been growing steadily over the past couple of quarters, the defense side of the industry stood its ground amid the COVID-19 crisis, cushioned by steady government support. To this end, it is imperative to mention that in August 2024, the U.S. Senate Committee on Appropriations approved the Fiscal Year (FY) 2025 Defense Appropriations Act, which provides $852.2 billion in total funding. This reflects a 3.3% increase over the approved funding during fiscal 2024. Such improved funding provisions set the stage for industry players focused on the defense business to win more contracts and expand their production volume, which is likely to boost their top line.
Supply-Chain Issues May Hurt: Significant supply-chain disruptions adversely impacted the Aerospace and Defense industry, thanks to the pandemic-induced lower aircraft demand and restrictions on the movement of people and goods. This primarily affected small suppliers like aircraft part manufacturers, especially those with heavy exposure to commercial aerospace, and the aftermarket business.
Although the global economy has been improving, the persisting supply-chain issues continue to be a challenge as it has been limiting the number of deliveries. In its June 2024 report, the IATA stated that an inventory of 38.7 million flights is expected to be available in 2024. This reflects a decline of 1.4 million flights from its previous estimate made in December 2023. This decline can be largely attributed to the slowing pace of deliveries in the face of persistent supply-chain issues in the aerospace sector. This, in turn, might constrict the growth trajectory of the U.S. Aerospace and Defense industry to some extent in the near term.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #138, which places it in the bottom 45% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved down 37.5% to $3.03 since Aug. 31.
Before we present a few aerospace-defense stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Aerospace-Defense industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively lost 2.5% against the Aerospace sector’s growth of 6.9%. The Zacks S&P 500 composite has gone up 30.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/Sales ratio, which is used for evaluating capital-intensive stocks like aerospace-defense, the industry is currently trading at 2.22 compared with the S&P 500’s 5.40 and the sector’s 2.45.
Over the past five years, the industry has traded as high as3.11X, as low as 1.53X and at the median of 2.50X, as the charts show below.
EV-Sales Ratio TTM
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3 Aerospace-Defense Stocks to Keep in Your Portfolio
Leidos Holdings: Based in Reston, VA, Leidos is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors and systems engineering. On Nov. 12, 2024, the company announced that it has partnered with the University of Edinburgh in the United Kingdom to advance artificial intelligence (AI) and data science solutions. The partnership will leverage the university's Bayes Centre, an innovation hub for data science and AI, to address critical challenges in areas such as environmental, civil, healthcare and national security. The partnership underscores Leidos' commitment to build AI that delivers high-quality outcomes while scaling efficiently.
The Zacks Consensus Estimate for Leidos’ 2024 sales implies an improvement of 6% from the 2023 reported figure. LDOS boasts a long-term earnings growth rate of 14.8%. It currently carries a Zacks Rank #1 (Strong Buy).
Price & Consensus: LDOS
Archer Aviation: Based in San Jose, CA, Archer Aviation designs and develops electric vertical takeoff and landing aircraft for urban air mobility. On Nov. 7, 2024, the company released its third-quarter 2024 results. ACHR completed the quarter with $501.7 million of cash and cash equivalents. Its operating expenses increased 26.1% year over year to $122.1 million.
The Zacks Consensus Estimate for the company’s 2024 earnings, pegged at a loss of 89 cents per share, suggests a solid improvement from the year-ago quarter’s reported loss of $1.52. The consensus mark also implies an improvement of 7.1% from the 2023 reported figure. The stock boasts a four-quarter average earnings surprise of 6.89%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ACHR
Intuitive Machines: Based in Houston, TX, Intuitive Machines is a space exploration company that supplies space products and services to support sustained robotic and human exploration. On Nov. 14, 2024, the company announced its third-quarter 2024 results. Its revenues improved a solid 359% year over year to $58.5 million, while its operating loss improved from the year-ago quarter’s $24 million to $13.7 million.
Intuitive Machines boasts a four-quarter average earnings surprise of 34.5%. The Zacks Consensus Estimate for the company’s 2024 sales indicates an improvement of 189.6% from the 2023 reported figure. LUNR currently carries a Zacks Rank #2.
Price & Consensus: LUNR
