Kalkine Media lists 5 US defense stocks to watch in 2023 - Kalkine Media

December 09, 2022 02:00 AM PST | By Rupam Roy
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  • Net sales of HEICO Corporation (HEI) rose 21 per cent YoY in Q3 FY22.
  • Revenue of Axon Enterprise, Inc. (AXON) grew 34 per cent YoY in Q3 FY22.
  • Net income Parsons Corporation (PSN) surged 19 per cent YoY in Q3 FY22.

The overall financial market witnessed sloppy trading so far through the year, except for some specific sectors. The main reason behind the shattered market condition was the Russia-Ukraine war that bumped up inflation.

On the other hand, the central bank's effort in taming the inflation to their two per cent target range by raising their policy rates also added to the concerns. The market has gone through a topsy-turvy scenario in 2022, due to these reasons.

However, the defense sector saw some positive momentum through 2022, considering the hovering geopolitical concerns around the globe. Countries like Japan, and Germany, among others, have said that they would increase their defense budget in the coming days to foil any foreign incursion.

Besides the Russia-Ukraine war, the geopolitical turmoil between China and Taiwan has also helped defense stocks to be on the investors' radar. The US and its allies are expected to consider sizable growth in their defense spending in the coming times.

Investors are keeping a close watch on aerospace and defense stocks, amid growing concerns throughout the world. While many anticipate that the war between Russia and Ukraine is likely to continue in the coming months, the sector has attained more traction.

In addition, the saber-rattling by North Korea, and the China-Taiwan turmoil after President Xi Jinping secured a third term in his chair, could result in a further increase in the defense spending of the US and its European allies.

The US and its allies seem to be considering all the possibilities in countering any military ambitions from foreign countries. So, today we would be exploring HEICO Corporation (NYSE: HEI), Axon Enterprise, Inc. (NASDAQ: AXON), Raytheon Technologies Corporation (NYSE: RTX), Parsons Corporation (NYSE: PSN), and Northrop Grumman Corporation (NYSE: NOC), and see how they have performed in recent months:

HEICO Corporation (NYSE: HEI)

The major aerospace and electronics firm, HEICO Corporation holds a market cap of US$ 9.36 billion. The stock of the company, which mainly manufactures products that are found in aircraft, defense equipment, and other related equipment, surged over 10 per cent YTD and about 12 per cent YoY.

The HEI stock added more than 10 per cent QTD through the first week of December and was at its 52-week high of US$ 165.79 on December 2, 2022.

On October 2, the company announced that its subsidiary, 3D Plus completed the acquisition of TRAD SAS in an all-cash deal. 3D Plus is a part of the firm's Electronic Technologies Group.

In Q3 FY22, HEICO Corporation's net sales rose 21 per cent YoY to US$ 569.5 million, and its operating income surged 28 per cent YoY to US$ 128.7 million. For the first nine months of the year, the aerospace and electronics firm's net sales jumped 18 per cent YoY to US$ 1.59 billion and its operating income grew 26 per cent YoY to US$ 350.3 million.

Axon Enterprise, Inc. (NASDAQ: AXON)

The Arizona-based leading manufacturing firm, Axon Enterprise Inc had a P/E ratio of 116.85. The stock of the company that develops technology and weapon products for defense, and law enforcement operations, ticked up about eight per cent YTD and around 14 per cent YoY.

The AXON stock gained around 46 per cent QTD through December 8 and was at its 52-week high of US$ 193.85 on November 18, 2022.

In Q3 FY22, Axon Enterprise Inc's revenue grew 34 per cent YoY to US$ 312 million, and its GAAP diluted EPS was US$ 0.17 apiece, against US$ 0.67 per share in Q3 FY21.

Raytheon Technologies Corporation (NYSE: RTX)

The American multinational aerospace and defense conglomerate firm, Raytheon Technologies Corporation holds a dividend yield of 2.19 per cent. The stock of the leading aerospace and defense manufacturer soared over 14 per cent YTD and close to 18 per cent YoY.

The RTX stock gained over 20 per cent in the ongoing quarter through December 8 and was over six per cent up from its 52-week of US$ 106.02 noted on April 21, 2022.

Raytheon Technologies Corporation's revenue rose five per cent YoY to US$ 17 billion in Q3 FY22, and its GAAP earnings per share inched up one per cent Yoy to US$ 0.94 apiece. The company's revenue noted six per cent organic growth in the reported quarter.

Parsons Corporation (NYSE: PSN)

Parsons Corporation is a leading defense, intelligence, and security firm with a market cap of US$ 5.02 billion. The stock of the firm, which also offers defense-focused infrastructure engineering services, jumped over 44 per cent YTD and around 43 per cent YoY.

The PSN stock rose close to 24 per cent QTD through December 8 and was at its 52-week high of US$ 50.15 on November 11, 2022.

Parsons Corporation's revenue grew 19 per cent YoY to US$ 1.13 billion in Q3 FY22, while its net income increased by 53 per cent YoY to US$ 30 million. Its revenue noted an organic growth of 11 per cent in the latest quarter.

Northrop Grumman Corporation (NYSE: NOC)

Another leading multinational aerospace and defense firm, Northrop Grumman Corporation had a dividend yield of 1.28 per cent. The stock of the leading weapon manufacturer and military technology provider was up over 37 per cent YTD and around 46 per cent YoY.

The company announced a quarterly dividend of US$ 1.73 apiece on its common stock, which would be payable on December 14, 2022. In Q3 FY22, Northrop Grumman Corporation's net sales rose three per cent YoY to US$ 9 billion, and its diluted EPS fell 11 per cent YoY to US$ 5.89 apiece.

Five US Defense stocks to watch in 2023Source: ©Kalkine Media®; © Canva Creative Studio via Canva.com

Bottom line:

As said earlier, the expectations of a sizable increase in defense spending have made many investors explore opportunities in the segment. But after the midterm polls, which resulted in a split government, have weighed on the hopes of some investors.

The split government results in a political or legislative gridlock, which might help the Republicans in countering the increasing defense spending agenda. While the political gridlock is generally considered a positive catalyst for the overall market, it might delay several agendas of the Democrats.

In July this year, the US House of Representatives passed a bill to advance a defense budget of over US$ 800 billion in 2023, which authorizes US$ 37 billion in spending on top of the record US$ 773 billion proposed by US President Joe Biden.

Looking at the performance of the sector, S&P 500 Aerospace & Defense Select Industry Index rose 13 per cent in 2022, and over 22 per cent in the running quarter, while on the other hand, the broader index lost over 17 per cent YTD while gaining about nine per cent quarter-to-date through December 8.


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