Investing in Defense Stocks: NOC, TXT, and LMT Outlook in 2024
The increasing global tensions and geopolitical conflicts are now predominantly offering considerable traction to the defense industries, hence creating robust demand for defense products. Additionally, rising upgrade activities and adoption of digital technologies are pushing the development of the sector.
With such a bright outlook in the industry, it would be a good call to invest in fundamentally strong air/defense stocks: Northrop Grumman Corporation (NOC), Textron Inc. (TXT), and Lockheed Martin Corporation (LMT). These companies appear to be very well placed to take advantage of the opportunities now opening up in the sector.
With increased geo-political tensions such as the Russia-Ukraine conflict and the Israel-Hamas situation, governments around the world are moving to increase their defense budgets to beef up military capabilities.
Current Trends in the Aerospace and Defense Industry, Defense Stocks
Meanwhile, as the U.S. DOD has allocated a $2.10 trillion budget for the fiscal year of 2024, which is going to revolve mostly in a provision of $1.08 trillion defense-related costs. On the other hand, where there are incredible hikes in the purchase of F-35s and F-16s the U.S. Air Force is expecting to rise its annual foreign military sales up to a level of 60% of it for the very same year.
The Air Force foreign military sales service is projecting sales of more than $46 billion in weapons during fiscal 2024, compared with the $28.7 billion booked during fiscal 2023. It appears that increased global instability is fueling this growing demand as U.S. allies move to bolster their defense capabilities.
Brig. Gen. Jeffrey Geraghty, director of the Air Force Security Assistance and Cooperation Directorate, calls it “business booming,” but with some measures indeed added in place: “Our partners recognize that it’s a dangerous world once again.”.
The air and defense sectors also experience the growing trend towards Artificial Intelligence (AI). During a recent conference, officials underscored the important need of allied and partner nations to make AI available and lead in the space domain. This was underscored as an element towards meeting formidable security challenges and enhancing industry prospects.
As the world’s defense market continues to grow with increased investments and heightened global tensions, this global defense market is anticipated to reach $772.49 billion at a CAGR of 5.8% by 2028, according to a report published by The Business Research Company.
2024 STOCK MARKET OUTLOOK
Considering all of these, let’s present the fundaments of the three Air/Defense Services picks starting with #3.
Stock #1: Northrop Grumman Corporation (NOC)
NOC is an aerospace and defense technology company. In business, the company operates through four lines of business: Aeronautics Systems (AS); Defense Systems (DS); Mission Systems (MS); and Space Systems (SS).
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Total net sales for fiscal 2024 second quarter ended June 30, for NOC increased by 6.7% year-over-year to total $10.22 billion. Total operating income for NOC rose 12.7% from comparable year-ago value to $1.09 billion.
The bottom line was also good, with the company’s net earnings and EPS increasing to $940 million and $6.36 respectively, amounts that were up 15.8% and 19.1%, from the prior year level. Its free cash flow for the quarter also popped 79.7% year-over-year to $1.11 billion.
NOC is raising its sales guidance for both AS and MS. AS would currently come in at or near the high end of $11 billion, and MS would be in the mid-$11 billion range. Both increases are supported by strong year-to-date results and good expectations that the rest of the year will be well.
Second, the company updated its margin expectations for AS and MS. NOC expects an AS Aeronautics margin rate to be in the mid to high 9% range, showing that the group is able to maintain solid margins through diversified mix content: mature production programs and promising early-stage developments.
Another improvement in NOC’s sales guidance for DS is to around $9 billion this year. It also adjusts SDS division realignment into the DS, which will contribute sales of about $2.7 billion. This increase also shows NOC’s sales volume forecast in relation to replenished ammunition and weapons.
In totality, NOC’s excellent performance and bright outlook have helped lift its diluted EPS by as much as $0.45 on a respectable level of financial trajectory.
NOC is expected to increase by 5.2% to 8.2% in revenue and EPS for the fiscal year ending in December 2024 at $41.34 billion and $25.20, respectively. NOC has successfully outpaced all four trailing quarters’ consensus revenue and EPS estimates.
Shares of NOC have gone up by 12% in the last six months and by 22% in the last year to close out the trading session at $518.54.
NOC’s POWR Ratings have a positive side for this stock. The overall rating is B, which works as a Buy in our Rating System. POWR Ratings analyze stocks based on 118 variables and assigns it to an optimum range.
NOC has a B grade for Momentum, Stability, and Sentiment. It ranks #16 out of 71 stocks in the Air/Defense Services industry.
Stock #2: Textron Inc. (TXT)
TXT is a diversified company with business segments operating through the aerospace, defense, industrial, and finance sectors. TXT’s expansive global network provides customers diverse solutions and services across the world. Its business segments include Textron Aviation; Bell; Textron Systems; Industrial; Textron eAviation; and Finance.
On August 21, Bell Textron Inc., a TXT company, delivered a Bell 429 and signed up for a purchase contract of two Bell 407GXi aircraft for the Chicago Police Department. Advanced technology models with multi-mission capability are ideal for agencies that feature public safety.
Bell’s two decades of collaboration with the Chicago Police Department has helped it position the company at the top of its sector. This partnership is a great example of the company’s sustained impact as well as its vast potential for further expansion in the public safety aviation market.
May 20, Textron Systems Corporation, an indirect wholly-owned subsidiary of TXT, and Kodiak Robotics, a pioneer in self-driving technology for trucking and defense, today announced a pioneering partnership to develop an autonomous military ground vehicle designed for driverless operations.
Partnership to Accelerate Advances in Capability, Flexibility, Reliability, and Hardiness of TXT’s Systems Toward Growth and Continued Leadership in the Military Ground Vehicle Market Introducing TXT with leading-edge technologies opens the company up further towards growth capabilities and market expansion and provides an impetus for its future in the defense sector.
Total revenues for TXT in the fiscal 2024 second quarter, ended June 29, 2024, increased year-over-year by 3% at $3.53 billion. The firm’s adjusted income from continuing operations was at $296 million or $1.54 per share. TXT’s EPS rose 5.5% from last year during the same period.
Analysts predict that the revenues of TXT for the fiscal third quarter, which will end on September 2024, to increase by 8.4 percent year over year to $3.62 billion. Meanwhile, its EPS is expected to advance by 6.4 percent from last year’s referenced quarter to $1.58. Additionally, the company was able to beat the consensus EPS estimates in three out of four trailing quarters.
TXT shares have jumped 12.3% in nine months and 15% year to date to close trading on last session’s session at $86.93.
The solid fundamentals behind TXT are also reflected by its POWR Ratings, which give it an overall grade of B, translating to a Buy in our exclusive rating system.
TXT has an A grade for Value and a B for both Momentum and Quality. It ranks #7 of 71 stocks in its given industry.
See ratings for TXT for Growth, Stability, and Sentiment here.
Stock #3: Lockheed Martin Corporation (LMT)
LMT is a global security and aerospace company. It specializes in research, design, development, manufacturing, integration, and sustainment of advanced technology systems. The operations are divided into four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
A teaming agreement has been announced by LMT on September 10, now with Tata Advanced Systems Limited, one of India’s top aerospace and defense solutions providers, in the tactical airlifter C-130J Super Hercules area. The firm is seeing enhanced operational capabilities as part of an overall deepened business relationship.
The collaboration is a testament to LMT’s commitment towards an independent India and strives for robust, confidence-building partnerships with the Indian industry. Together, they will push the mutual agenda forward and contribute to the growth of the defence market in India.
On 15 August, LMT revealed a definitive agreement for the acquisition of Terran Orbital Corporation-a leading manufacturer of satellites that serve the aerospace and defense sectors, in a deal valued around $450 million.
The strategic acquisition underlines LMT’s commitment to enhancing its advanced satellite manufacturing and responsive space capabilities, setting the company up for continuing growth and innovation in the space sector.
For the fiscal 2024 second quarter that ended June 30, 2024, LMT net sales increased 8.6% from the prior year’s quarter to $18.12 billion. Its consolidated operating profit grew marginally from the year-ago value to $2.15 billion.
Adjusted net earnings were at $1.70 billion for the quarter. Adjusted EPS stood at $7.11, up 5.6% from the same quarter of the prior year. Free cash flow increased 95.3% year-over-year and was $1.51 billion.
The consensus on revenue and EPS is expected to settle at $17.63 billion and $6.63, respectively. By fiscal 2025 Q1 ended March 2025, the revenue increase was 2.5% year over year while EPS is close to 4.7% year over year. In fact, in all four trailing quarters, the company has beaten the consensus estimates for revenue and EPS.
The shares have increased 23.8% over the last three months and 36% in the last one year to end at $568.27 during the last trading session.
POWR Ratings for LMT
An overall grade indicates that there is a good outlook for a buy with LMT. As such, it translates to a Strong Buy in our very own rating system.
LMT has a B for Sentiment, Momentum, Stability, and Quality. It ranks #2 in industry Air/Defense Services of 71 total stocks.
LMT Trading Alert
Pre-market Tuesday: Lockheed Martin Corp. stock traded flat Tuesday morning, while Friday it closed flat, same session. Over the past year, LMT has risen 27.86% year-to-date, while the S&P 500 has risen 18.37%.