Though Q1 earnings season has seen a comparatively weak start,
the aerospace and defense space has come out with a series of
estimate beating results.
ISHARS-US AEROS (ITA): ETF Research Reports
PWRSH-AERO&DEF (PPA): ETF Research
SPDR-SP AER&DEF (XAR): ETF Research
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The world's largest aerospace and defense manufacturers Boeing,
Lockheed Martin and Northrop have all cheered the market by
reporting higher-than-expected profits and raising their full
year forecasts. Cost cutting strategies and operational
efficiency enabled these biggies to keep their bottom-line
Top Ranked Defense Stocks and ETFs Ready to
Premier defense operators are expanding their operations through
acquisitions and foreign orders to combat defense budget cuts in
the U.S. These companies are also restructuring their businesses
and keeping themselves abreast of technology to counter fresh
Below we have highlighted in greater details the earnings of some
of the aerospace and defense companies.
Earnings in Focus
) reported adjusted first quarter 2014 earnings of $1.76 per
share, beating the Zacks Consensus Estimate by 15.4%. Revenues
from the company's Commercial Airplane Segment surged 19% to
$12.7 billion on higher delivery volume. Strong top-line growth
and increased deliveries of its flagship commercial airframes,
the 737, 777 and the 787, were the primary contributors for the
), which makes unmanned planes, the B-2 bomber and electronic
equipment, also reported higher-than-expected earnings and
revenues. While the company's adjusted earnings of $2.40 per
share surpassed the Zacks Consensus Estimate of $2.15 by 11.6%,
revenues beat our forecast of $5,809 million by 0.7%.
However, the company reported a 4.2% year-over-year drop in its
quarterly revenues. Lower volume from unmanned and space programs
as well as from combat avionics and navigation and maritime
systems programs were some of the reasons behind the sales
Aerospace and Defense ETF Investing 101
Pentagon's prime contractor,
) also came up with bright results amid the uncertain budget
environment. Though the company missed our revenue estimate of
$10,834 million by a small 1.7% margin, it reported quarterly
earnings of $2.87 per share, beating our estimates by a margin of
roughly 14%. Moreover, the company reported a 27.6% jump in
earnings from the year-ago quarter.
United Technologies Corp.
) reported better-than-expected results beating our estimates on
both earnings and revenues. Though the company's profits fell 5%
year over year, an improved 2014 guidance helped cheer
investors. Sales in 2014 are expected to be $64 billion.
The company increased the low end of its earnings guidance from
$6.55-$6.85 per share to $6.65 to $6.85 per share.
Given these encouraging results and promising outlook, the above
mentioned companies could see a boost in their share prices.
Also, Zacks Industry Rank for aerospace/defense is within the top
15% bracket, suggesting bright prospects for this industry going
In tandem, aerospace and defense ETFs having exposure to the
above companies could see gains in the coming days. Thus
investors keen on riding the gains can consider the ETFs
discussed below (see
all Industrials ETFs here
ETFs to Play this Sector
PowerShares Aerospace & Defense Portfolio
PPA is based on the SPADE Defense Index that tracks companies
involved in the development, manufacturing, operations and
support of U.S. defense, homeland security and aerospace
The product has managed to garner $98.8 million in assets so far,
which are currently invested in 51 securities. It charges 66
basis points in expenses and pays out dividends at a yield of
Boeing, United Technologies, Lockheed and Northrop together
occupy 24.25% of total fund assets.
PPA currently is a Zacks Rank #2 (Buy) ETF.
iShares U.S. Aerospace & Defense ETF (
With an asset base of $385.9 million, ITA is the largest player
in this space. It charges an annual fee of 45 basis points per
year while the dividend yield stands at 1.07%.
The fund holds 38 securities in its basket with United
Technologies (9.7%), Boeing (8.9%) and Lockheed Martin
(6.2%) holding the top three spots. Aerospace takes about 54% of
the asset base while defense accounts for 43%.
ITA is a Zacks Rank #1 (Strong Buy) ETF (read:
3 Low Correlated ETFs Surging in Shaky
SPDR S&P Aerospace & Defense ETF (
The product tracks the S&P Aerospace and Defense Select
Industry index, having an asset base of $50.8 million so far. It
holds 36 securities, charges 35 basis points in expenses and has
a decent dividend yield of 1.22% currently. Spirit AeroSystems
Holdings, Alliant Techsystems and United Technologies are the top
XAR is a Zacks Rank #1 (Strong Buy) ETF.
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