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Zacks Industry Outlook Highlights: Ducommun, KLX and LMI Aerospace

Chicago, IL - December 14, 2015 - Today, Zacks Equity Research discusses the Aerospace/Defense (Part 3), including Ducommun Inc. ( DCO ), KLX Inc. ( KLXI ) and LMI Aerospace Inc. ( LMIA ).

Industry: Aerospace/Defense (Part 3)

Link: http://www.zacks.com/ commentary/64683/will-cuts-in- major-weapons-programs-hurt- defense-stocks

Economic Picture: The U.S. has been the world's largest defense consumer since World War II. Iraq and Afghanistan wars in the past decade boosted spending, driving it to historic heights. However, the winding down of those wars and severe pressure to lower the national debt burden following the country's major financial distress since the Great Depression have cast a long shadow over the U.S defense budget. Although the defense market received the latest two-year budget deal with much enthusiasm as it brought military stability, one cannot overlook the risk of an economic downturn.

A country's ability to spend on defense is a function of its economic health. The same is true at the global level - the faster the global economy grows, the higher the defense spending. Following the global crisis in 2008, there was a marked shift in defense spending growth from the developed to the emerging countries.

Notably, the overall U.S. economy, as measured by the gross domestic product or GDP, increased at an annual rate of 2.1% in the July-September period, per the Commerce Department report. This was down from the second quarter's notable 3.9% growth rate. Government spending grew at a 1.7% rate as strength in state and local spending offset a big drop in defense spending.

Although GDP growth will likely accelerate slightly to around 2.5% for 2015, economists are anticipating that 2015 will be another year of only modest economic growth.

Intense Competition: The aerospace and defense companies compete among themselves for a number of small and large programs.

Moreover, China is flexing its military muscles and is developing space technologies aimed at blocking U.S. military communications, per a report commissioned by a panel formed by the U.S. Congress. China's goal is to become a space power as forceful the U.S. and to promote a space industry equal to those in the U.S., Europe and Russia.

Given the looming headwinds, we advise investors against names that offer little growth/opportunity over the near term. These include companies for which estimate revision trends reflect a bearish sentiment.

In addition, we are skeptical of these Zacks Ranked #5 (Strong Sell) stocks: Ducommun Inc. ( DCO ), KLX Inc. ( KLXI ) and LMI Aerospace Inc. ( LMIA ).

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DUCOMMUN INC DE (DCO): Free Stock Analysis Report

KLX INC (KLXI): Free Stock Analysis Report

LMI AEROSPACE (LMIA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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