Analyst Has Top Defense and Aerospace Stocks to Buy Before Q1 Earnings

By Lee Jackson Updated Jan 12, 1:03PM EST · Published Apr 12, 8:15AM EDT

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Analyst Has Top Defense and Aerospace Stocks to Buy Before Q1 Earnings — © courtesy of U.S. Air Force

[cnxvideo id=”655354″ placement=”ros”]Needless to say, the defense and aerospace sector has been red-hot since the election of Donald Trump back in November. Toss in the uncertainty in the Middle East and on the Korean peninsula, and you have all the ingredients in place for the sector to continue to draw investor interest. With the defense sector up nearly 8% this year, versus the S&P 500’s 5.5%, it makes sense to stick with the leaders.

In a new Deutsche Bank research report, outstanding analyst Myles Walton makes the case that Wall Street in general remains more positive on the defense stocks, and overall more neutral on commercial aerospace companies. The analyst likes three top stock picks from both areas into the first-quarter earnings, and all are rated Buy at Deutsche Bank.

Lockheed Martin

This is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from a large number of foreign allies of the nation.

The company recently secured a contract for providing flight-line spare parts. Valued at $750 million, this is a five-year base contract with a three-year and a two-year option period. Lockheed Martin will complete work under this agreement utilizing fiscal 2017 through 2022 defense working capital funds and expects to finish the project by March 31, 2022.

Shareholders are paid a very solid 2.71% dividend. The Deutsche Bank price objective for the stock is $295, while the Wall Street consensus target price is $282.68. The shares closed trading on Tuesday at $270.27.

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Rockwell Collins

The Deutsche Bank analyst is very positive going into earnings and cites the closure of the B/E Aerospace deal as a catalyst. Rockwell Collins Inc. (NYSE: COL) is a leader in providing design, production, integration and support of communications and aviation electronics for military and commercial customers worldwide. The company’s products include avionics suites for business and commercial aircraft, radios, GPS navigation and IFE systems.

Rockwell Collins agreed last fall to pay $6.4 billion to buy B/E Aerospace in a deal that will unite two of the biggest suppliers to airlines and plane makers. The arbitrage accounts that were long B/E and short Rockwell should be clearing those positions with the deal expected to close soon.

Shareholders are paid a 1.33% dividend. Deutsche Bank has a price target of $115, and the consensus target is $104.35. The stock closed Tuesday at $99.35.

Transdigm

This company was hitting our insider buying screens in a big way earlier this year. Transdigm Group Inc. (NYSE: TDG) is a holding company for different businesses that provide a diverse array of products including ignition systems, pumps, valves, motors, actuators, controls, water faucets and systems, quick disconnects and couplings, batteries, chargers and power conditioning, cockpit security systems, composites and elastomers, audio systems and lighting and displays.

The analyst notes that the stock has been under siege recently, and said this in the report:

While Transdigm remains a highly charged stock following a steady barrage of short reports, we like the name and particularly the valuation following the most recent leg down. Bookings trends last quarter should be enough to lift aftermarket growth despite tough comps, and short covering into results will likely also help the stock in the near-term.

The Deutsche Bank price target is a sky-high $305. The consensus target is $287.94, and the stock closed Tuesday at $234.01.

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With the White House pledge to rebuild the military, and global sales remaining strong, the sector remains a solid space to stay weighted in. These three companies could take off on good earnings, and the added catalysts may provide additional fuel for the fire.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.