America's defense sector is on track for one of its best performances in the recent times. Signs of such strength are evident in last quarter's financial performance by major players in the industry. GOP's efforts to establish a larger defense budget and its landmark tax overhaul has been pivotal in shaping the sector's fortunes.
The recent geopolitical tussle between the United States and some of its long-standing opponents has only strengthened America's defense resolve. Finally, the country's efforts to bolster defense ties with its close allies will provide a major boost to the space. Under such circumstances, adding defense stocks to one's portfolio seems prudent.
Strong Q3 Earnings A Major Boost to US Defense
Major players in the defense sector have reported stronger-than-expected financial results for the third quarter of this year. United Technologies' UTX adjusted earnings in the last quarter came in at $1.93 per share, surpassing the Zacks Consensus Estimate by 6.6%. Other major players in the space, which posted an earnings beat in the third quarter, include Northrop Grumman NOC and General Dynamics GD .
Northrop Grumman delivered third-quarter 2018 earnings of $6.54 per share, which outpaced the Zacks Consensus Estimate of $4.35. On the other hand, General Dynamics' Q3 earnings from continuing operations came in at $2.89 per share, beating the Zacks Consensus Estimate of $2.74 by 5.5%.
Furthermore, as of Oct 24, the Zacks Aerospace sector has witnessed earnings growth of 37.1% year over year on 10.7% sales improvement in the current reporting cycle. (Read More: Defense Stock Roundup: Q3 Picture Impressive, LMT, BA, UTX, GD Earnings Beat )
GOP's Defense Budget Pave Way for Gains
America's defense sector has gained significantly from the Republican-controlled Congress' humongous defense budget. Moreover, it goes without saying that GOP's tax overhaul late last year also provided the sector with the required stimulus for growth.
Boeing's chief executive, Dennis Muilenburg stated that there are signs of "sustained long-term stable defense budget in the U.S." Moreover, a stable budget environment makes it easier for players in the space to plan way ahead into the future. Such long-term planning coupled with assured stability has historically benefited any technology-intensive industry.
The removal of "sequestration" budget caps last year by the Congress has been a welcome relief for the sector. The amendment also lifted limits on defense spending that had been around since 2013. Finally, the most recent defense spending bill was passed without any "continuing resolution" which enabled companies to gauge better their future sales.
4 Hot Choices
Strong earnings in the third quarter of 2018, America's strengthening defense resolve and GOP's humongous defense budget would go a long way in boosting gains for the defense stocks.
In this context, we have selected four defense stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Aerojet Rocketdyne Holdings, Inc.AJRD is the manufacturer and seller of aerospace and defense products and systems.
The company is based out of El Segundo, CA and has a Zacks Rank #1. The expected earnings growth rate for the current year is 75.68%. The company reported third-quarter 2018 adjusted earnings of 42 cents per share, surpassing the Zacks Consensus Estimate of 30 cents by 40%.
Lockheed Martin CorporationLMT is the operator of a defense and aerospace company. The company is involved in research, design, development, manufacture, integration, and sustainment of technology systems and products used in defense and space missions.
The company is based out of Bethesda, MD and has a Zacks Rank #2. The expected earnings growth rate for the current year is 31.13%. The company's third-quarter 2018 earnings of $5.14 per share surpassed the Zacks Consensus Estimate of $4.32 by 19%.
Raytheon CompanyRTN is a leader in technology and innovations, and provides its products and services to defense and other government markets worldwide. It develops technologically advanced and integrated products, solutions and services.
The company is based out of Waltham, MA and has a Zacks Rank #2. The expected earnings growth rate for the current year is 32.41%. The company reported third-quarter 2018 earnings per share (EPS) from continuing operations of $2.25, beating the Zacks Consensus Estimate of $1.94 by 16%.
The Boeing Company BA engages in designing, developing, manufacturing and supporting commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems.
The company is based out of Chicago, IL and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 20.80%. The company's adjusted earnings came in at $3.58 per share for third-quarter 2018, beating the Zacks Consensus Estimate of $3.45 by 3.8%.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportNorthrop Grumman Corporation (NOC): Free Stock Analysis ReportLockheed Martin Corporation (LMT): Free Stock Analysis ReportGeneral Dynamics Corporation (GD): Free Stock Analysis ReportThe Boeing Company (BA): Free Stock Analysis ReportAerojet Rocketdyne Holdings, Inc. (AJRD): Free Stock Analysis ReportUnited Technologies Corporation (UTX): Free Stock Analysis ReportRaytheon Company (RTN): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research