The Defense Sector

It’s no secret that the Aerospace and Defense Sector has had an incredible run lately. Boeing [NYSE:BA], United Technologies [NYSE:UTX], Lockheed Martin [NYSE:LMT], General Dynamics [NYSE:GD], the Raytheon Company [NYSE:RTN] and the Northrop Grumman Corporation [NYSE:NOC] dominate this sector. If you’ve considered investing in long-term defense, these companies are the best place to begin your search.

The following chart represents their respective market caps in the entire Aerospace and Defense industry:

Each of these companies is well diversified, have decent dividends, and a history of beating the market. If you had equally invested in these titans at the start of the year, you would have found yourself up 16.9% by today’s open- not including dividend payouts! These companies are moved by goodwill, contracts, and quarterly reports; with earnings season upon us once more, I’m here to briefly introduce each one.


Boeing

With a market cap of $127B, Boeing is notably the largest aerospace and defense stock on earth. This is due in part to their having both commercial and military applications, which have allowed Boeing to flourish despite changing political identities and economic situations. Below is a table depicting quarterly EPS variation and earnings by business segment. It’s important to note that their commercial segment has been delivering fewer aircraft than previous quarters.

 1Q 20174Q 20163Q 20162Q 20161Q 2016
Commercial Airplanes [millions]121514731597-9731033
Defense, Space & Security [millions]737809784593822
Earnings per Share2.012.473.51-0.44
EPS Estimate1.912.342.62-0.88

Their earnings report is expected on July 26, before market open.

The consensus EPS forecast is $2.32, but Boeing has beaten recent forecasts by a wide margin. Estimates for the same quarter last year were half that of what the company reported.


United Technologies

United Technologies’ Pratt & Whitney and UTC Aerospace Systems are influential companies present in a high majority of commercial and military aircraft across the globe. Their UTC Climate [HVAC] and Otis [Elevator] segments are nothing to scoff at either, bringing in more than half of the company’s profit margin. Below is a table depicting quarterly EPS variation and operating income by business segment.

 1Q 20174Q 20163Q 20162Q 20161Q 2016
Pratt & Whitney [millions]393409340386410
UTC Aerospace Systems [millions]576578600582538
Otis [millions]452516584581466
UTC Climate, Controls & Security [millions]963677801872606
Earnings per Share1.481.561.761.82
EPS Estimate1.391.561.681.65

The company is expected to report their earnings on July 25, before market open.

Consensus estimates list the EPS as an expected $1.77, which is down from last year’s $1.82. First quarter earnings were up a decent amount compared to 2016’s 1Q.


Lockheed Martin

Another incredibly far-reaching company, Lockheed Martin is present in every discussion of military application. Their largest program, generating 23% of their total net sales as of their annual report, is the F-35. On July 7, they received a $5,577,714,486 contract for the advanced procurement of their 11th lot.

Their earnings report is expected tomorrow, July 18, before market open.

Estimates forecast an EPS of $3.09, down from last year.

UPDATE [07/18]: Q2 Earnings are in, and at $3.23, LMT’s EPS surprised the average analyst expectation by about 4.5%. Their F-35 program is going strong, and earnings have benefited from it. Share value is up about 1% at the time of this writing. [11:25 AM EST]


General Dynamics

From Nuclear Submarines to Information Technology services, Gulfstream, and other Aerospace applications, General Dynamics hits all of the right buttons for a defense sector behemoth. A fairly well-rounded company, their Gulfstream segment gave their first quarter ER the extra support it needed to be as impressive as it was. Below is a table depicting quarterly EPS variation and operating earnings by business segment.

 1Q 20174Q 20163Q 20162Q 20161Q 2016
Aerospace [millions]443515437434332
Combat Systems [millions]205289219219187
Information Systems and Technology[millions]236255256244237
Marine Systems [millions]161194166181184
Earnings per Share2.482.622.482.44
EPS Estimate2.322.542.372.3

Their second quarter earnings report is expected on July 26, before market open.

The consensus EPS forecast is $2.43, but General Dynamics has a recent history of beating forecasts by a decent margin.


Raytheon

Hey, remember that airfield we flattened in Syria with 59 Tomahawk missiles? I don’t believe it’s farfetched to claim that most missiles used by the US were manufactured by Raytheon. If you can ignore the war aspect and focus on business for a moment, that’s an expensive consumable product -and that’s only one of five segments of the company. Below is a table depicting quarterly EPS variation and operating income by business segment.

 1Q 20174Q 20163Q 20162Q 20161Q 2016
Integrated Defense Systems [millions]212220209375146
Intelligence, Information and Services [millions]111117122124104
Missile Systems [millions]216260241223192
Space and Airborne Systems [millions]190237210203167
Forcepoint [millions]16719718
Earnings per Share1.731.881.791.75
EPS Estimate1.611.861.641.7

Their earnings report is expected on July 27, before market open.

The consensus EPS forecast is $1.75, but again, Raytheon has a tendency to surprise experts.


Northrop Grumman

Northrop, much like Lockheed, covers a wide array of defense subjects. Their reach extends from logistical support to autonomous drones and everything in between. They’re notably the creators of the B-2 Spirit flying wing aircraft, and were a large part of the success of the 1969 lunar module. Pay attention to the operating income of their missions systems segment. Though sales attributed to aerospace systems is higher than any other area of the company, their missions systems segment has the greater bottom line. Below is a table depicting quarterly EPS variation and operating income by business segment.

 1Q 20174Q 20163Q 20162Q 20161Q 2016
Aerospace Systems [millions]312327311312286
Mission Systems [millions]353390351351353
Technology Systems [millions]131125130131126
Earnings per Share3.632.663.022.6
EPS Estimate2.92.492.812.5

Their earnings report is expected on July 26, before market open.

The consensus EPS forecast is $2.84, but they’ve been surprising analysts by a decently large margin lately.


Disclaimer

As of this moment, I do not own shares of any of these companies. My opinions are entirely my own and may or may not reflect the opinions of my peers on TickHounds. I am not being compensated for sharing my due diligence in any way other than what tips may be accrued.


Sources

BA Q1 10Q PDF
UTX Q1 10Q PDF
LMT Q1 10Q PDF [Warning: Direct Download]
GD Q1 10Q PDF
RTN Q1 10Q PDF [Warning: Direct Download]
NOC Q1 10Q PDF [Warning: Direct Download]
NASDAQ Earnings Estimates