The defense industry has gained traction since the beginning of this year due to the ongoing war between Russia and Ukraine. This led to increased military spending and reinvestment in NATO for the continent’s security. According to the Stockholm International Peace Research Institute (SIPRI), expenditures topped $2 trillion for the first time, with the United States accounting for nearly 40% of the total spending.
On June 22, the U.S. House of Representatives Armed Services Committee backed a proposal to increase spending for the Department of Defense by $37 billion on top of the proposed $773 billion, which indicates a Pentagon budget of at least $810 billion next year.
Russia’s aggression has created lucrative opportunities for the defense sector, driving the demand for weapons being transferred from the U.S. to Ukraine. This is expected to boost the revenues of many defense companies.
Thus, we think investors should buy the dip in top-quality defense stocks Moog Inc. (MOG.A), Airbus SE (EADSY), Astronics Corporation (ATRO), Textron Inc. (TXT), and Sturm, Ruger & Company, Inc. (RGR). These stocks are currently trading below their 52-week highs but are well-positioned to perform well amid the market uncertainties.
Moog Inc. (MOG.A)
MOG.A designs, manufactures, and integrates precision motion and fluid controls and controls systems for original equipment manufacturers and end-users in the aerospace, defense, and industrial markets. It operates through three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems.
On February 24, 2022, MOG.A acquired Dublin’s Team Accessories Limited. Mark Brooks, Moog Commercial Aftermarket Group’s VP and General Manager, said, "TEAM expands our product and capabilities portfolio for the aircraft engine accessories market. Their reputation for high quality and reliable service fit well with Moog’s core principles."
MOG.A’s sales increased 5% year-over-year to $770.79 million for the second quarter ended April 2, 2022. Its gross profit grew 6.5% from the year-ago value to $213.01 million. The company’s adjusted net earnings increased 11.9% year-over-year to $47.94 million, while its non-GAAP EPS came in at $1.49, up 12% from the year-ago value.
Analysts expect MOG.A’s EPS and revenue for the fiscal third quarter (ended June 2022) to increase 28.6% and 8.7% year-over-year to $1.44 and $768.68 million, respectively.
Over the past nine months, the stock has gained 2.1% to close the last trading session at $80.24. It is currently trading 10.8% below its 52-week high of $90.01, which it hit on March 25, 2022.
MOG.A’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value, Stability, and Quality. Within the Air/Defense Services industry, it is ranked first out of 77 stocks. Click here to see the other ratings of MOG.A for Growth, Momentum, and Sentiment.
Airbus SE (EADSY)
Headquartered in Leiden, Netherlands, EADSY is engaged in the designing, manufacturing, and marketing of jet aircraft and aircraft components, civil and military helicopters, military combat aircraft and training aircraft, defense electronics, and global security market solutions. The company operates through three segments: Airbus, Airbus Helicopters, and Airbus Defence and Space.
On July 1, 2022, the company received an order for 292 A320 aircraft from China. The new orders reflect the growing demand for EADSY's products and services and the company's vast market reach within the Chinese aviation market.
For the fiscal first quarter ended March 31, 2022, EADSY’s consolidated revenues increased 15% year-over-year to €12 billion ($12.52 billion). Its adjusted EBIT grew 82% from its year-ago value to €1.26 billion ($1.32 billion), while its net income improved 237% from its prior-year quarter to €1.22 billion ($1.27 billion). The company’s EPS came in at €1.55, up 237% year-over-year.
For the current quarter ending September 30, 2022, EADSY’s revenue is expected to increase 20.1% year-over-year to $14.76 billion, while its EPS is expected to amount to $0.26.
The stock has declined 26.1% over the past nine months and 22.7% over the past year to close the last trading session at $25.16. It is currently trading 28.2% below its 52-week high of $35, which it hit on July 29, 2021.
EADSY’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 in the same industry. To see the other ratings of EADSY for Growth, Momentum, and Stability, click here.
Astronics Corporation (ATRO)
ATRO designs and manufactures technological solutions for the global aerospace, defense, electronic, and other mission-critical industries. The company operates through two segments- Aerospace and Test Systems in the US, North America, South America, Europe, Asia, and internationally.
On June 29, 2022, the company was selected by Lilium N.V. to build its electrical power distribution system. This reflects the demand for the company’s services amongst its peers.
On May 20, 2022, ATRO partnered with LG Display to bring OLED display technology to the avionics industry. The companies’ combined capabilities should enhance ATRO’s portfolio and offerings.
ATRO’s sales increased 10% year-over-year to $116.18 million in the fiscal first quarter ended April 2, 2022. Its gross profit grew 39.7% year-over-year to $19.93 million, while its total bookings increased 46% from its year-ago value to $175.60 million.
Analysts expect ATRO’s revenue for the quarter ended June 30, 2022, to increase 14.4% year-over-year to $127.12 million. The Street expects its EPS to increase 25% year-over-year to $0.20 in the same period.
Over the past nine months, the stock has declined 29.9% to close the last trading session at $10.40. It is currently trading 46.1% below its 52-week high of $19.28, which it hit on July 12, 2021.
ATRO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It also has a B grade for Value and Quality. Again, it is ranked #4 in the same industry. Click here to see the other ratings of ATRO for Growth, Momentum, Stability, and Sentiment.
Textron Inc. (TXT)
TXT operates as an aircraft, defense, industrial, and finance business. It offers business jets, military and commercial helicopters, unmanned aircraft systems, and financing services. The company operates through six segments: Textron Aviation, Bell, Textron Systems, Industrial, Finance, and eAviation.
On May 9, 2022, Textron Aviation, a TXT company, reported the first delivery of the Cessna Skycourier twin utility turboprop to FedEx Corporation (FDX). In addition to the initial order, FedEx Express has options for 50 more SkyCourier aircraft, which might benefit TXT.
On April 18, 2022, TXT acquired Pipistrel, a pioneer electric-powered aircraft. This is expected to enhance the company’s operative capability significantly.
TXT’s total revenues increased 4.2% year-over-year to $3 billion in the first quarter ended April 2. Its net income grew 12.9% from the year-ago value to $193 million. The company’s EPS increased 17.3% from the prior-year quarter to $0.88.
For the second quarter ending June 2022, TXT’s EPS is expected to increase 9.2% year-over-year to $0.88. Its revenue for the to-be-reported quarter is expected to increase marginally year-over-year to $3.20 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of TXT have declined 20.8% year-to-date to close the last trading session at $61.11. It is currently trading 23.1% below its 52-week high of $79.45, which it hit on January 7, 2022.
TXT’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has a B grade for Value and Quality. Again, within the same industry, it is ranked #2. To see the other ratings of TXT for Growth, Momentum, Stability, and Sentiment, click here.
Sturm, Ruger & Company, Inc. (RGR)
RGR is a leading manufacturer of rugged, reliable goods for the commercial sporting market. It operates in two segments: Firearms and Castings. The company sells its firearm products through independent wholesale distributors, castings, and MIM parts through manufacturers’ representatives.
On May 26, 2022, RGR introduced the new Mark IV 22/45 Lite model, expanding the rimfire pistols family. Integrated with advanced and high-quality features, it could generate strong consumer demand for target shooting, plinking, small game hunting, or competitive shooting.
RGR’s total operating expenses decreased 6% year-over-year to $19.38 million in its first quarter ended April 2, 2022. Its cash grew 98.9% to $41.59 million compared to $21.04 million for the fiscal year ended December 31, 2021. Also, its total assets increased marginally to $446.48 million compared to $442.34 million for the fiscal year ended December 31, 2021.
Shares of RGR have declined 27.7% over the past year to close the last trading session at $64.31. It is currently trading 23.5% below its 52-week high of $84.12, which it hit on August 9, 2021.
RGR has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B grade for Value. Also, it is ranked #9 out of 77 stocks in the Air/Defense Services industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the RGR ratings for Growth, Momentum, Stability, and Sentiment here.
MOG.A shares were trading at $77.52 per share on Tuesday afternoon, down $2.72 (-3.39%). Year-to-date, MOG.A has declined -3.60%, versus a -20.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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