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Stifel: 3 Defense Stocks in Line for More 'Outsized Growth'

Stifel: 3 Defense Stocks in Line for More 'Outsized Growth'

By    |   Tuesday, 22 October 2019 09:28 AM

Brokerage and investment banking firm Stifel predicts that some defense stocks are in a good position to climb even despite concerns about the U.S.’s defense budget.

Stifel analyst Joseph DeNardi says that a delay in funds from the Department of Defense may be giving investors an unjustly negative view of the stocks, Barron’s explained.

Barron’s said DeNardi thinks spending by the department—the main source of sales for U.S. defense companies—tends to lag one to two years behind when the budget for outlays is approved. The delay is extended when spending is higher, as it has been in the past several years, DeNardi says.

Actual outlays, rather than spending authority defined in the Defense Department budget, are the best gauge of sales for producers of military hardware, he says. Thus, while growth in the budget is expected to slow down in 2020, and many analysts expect defense companies’ top lines to take a hit as a result, the companies may perform better than feared, Barron’s said.

 “We see a similar setup into 2020 as bullish for our pure-play defense coverage, namely Lockheed, Northrop, and Raytheon,“ he wrote, saying “there looks to be one more year of outsized growth in 2020 before a deceleration in 2021.”

DeNardi rates Lockheed Martin (LMT) and Raytheon (RTN) at Buy, but has a Hold rating on Northrop Grumman (NOC).

To be sure, Goldman Sachs recently said it recommends aerospace and defense stocks because of their defensive qualities and zero reliance on China sales.

Goldman Sachs pointed out that aerospace and defense stocks have recently outpaced the growth of the S&P 500, CNBC reported.

“During the past 10 years, Aerospace & Defense has been least sensitive to US and global economic growth across Industrials subsectors,” Goldman Sachs analyst David Kostin said.

The firm pointed out that the three S&P 500 aerospace and defense companies “with the lowest reported sales to Asia Pacific” are TransDigm, Huntington Ingalls and Northrop Grumman.

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Brokerage and investment banking firm Stifel predicts that some defense stocks are in a good position to climb even despite concerns about the U.S.’s defense budget.
stifel, defense, stocks, growth
322
2019-28-22
Tuesday, 22 October 2019 09:28 AM
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