Assuming the major parties’ nominees for the November U.S. presidential election will be Joe Biden and Donald Trump, it is anybody’s guess who will be elected, but it can be useful for investors to consider which stock sectors or industries might fare best if one or the other were to win a second term in the White House.
Joseph Adinolfi looked earlier this week at how various stock sectors performed during the first Trump presidency and, based on a report from Sevens Report Research, looked ahead at a potential second Trump term.
One of the industry groups whose stocks Tom Essaye, publisher of Sevens Report Research, said he would expect to perform well during a second Trump term is defense.
Read: Trump’s return to the White House could benefit these stock-market sectors — while undercutting others
Of course, regardless of who wins the November election, U.S. defense contractors may benefit from the depletion of hardware and munitions resulting from U.S. and other NATO countries’ support for Ukraine’s defense against Russia’s invasion, along with renewed efforts to bolster the conventional defenses of Western European countries.
Screening U.S. defense stocks
So with the stage set for what might be a strong multiyear period for U.S. defense contractors, we began a screen with the 35 stocks held by the $5.9 billion iShares U.S. Aerospace and Defense exchange-traded fund
ITA.
This is a broad stock-market category that goes beyond companies making military or aeronautical hardware.
Then we added the five aerospace and defense stocks, as categorized by FactSet, that are in the S&P Composite 1500 Index
XX:SP1500
but aren’t in the ITA portfolio, for an initial list of 40 U.S. stocks. The S&P Composite 1500 is made up of the S&P 500
SPX,
the S&P MidCap 400
MID
and the S&P MidCap 600.
Then we narrowed the screen to include only companies that are covered by at least five analysts polled by FactSet and whose 2023 revenue (or estimated revenue) totaled at least $1 billion.
That leaves a list of 27 stocks.
Expected sales growth
Some companies have fiscal years that don’t match the calendar, so the estimates driving this screen are based on FactSet’s adjusted estimates for calendar years.
Here are the 10 aerospace and defense companies on our list that are expected to show the highest compound annual growth rates for sales from 2023 through 2025, based on consensus estimates among analysts polled by FactSet. Expected weighted sales CAGR for the S&P 500 and the S&P 500 aerospace and defense industry group are at the bottom of the table.
| Company | Ticker | Two-year estimated sales CAGR through 2025 | Estimated 2023 sales | Estimated 2024 sales | Estimated 2025 sales |
| Axon Enterprise Inc. |
AXON, |
22.1% | $1,561 | $1,924 | $2,331 |
| Spirit AeroSystems Holdings Inc. Class A |
SPR, |
19.6% | $6,048 | $7,484 | $8,653 |
| Heico Corp. |
HEI, |
15.8% | $3,112 | $3,890 | $4,173 |
| Heico Corp. Class A |
HEI.A, |
15.8% | $3,112 | $3,890 | $4,173 |
| Boeing Co. |
BA, |
13.2% | $77,745 | $89,788 | $99,658 |
| TransDigm Group Inc. |
TDG, |
12.1% | $6,864 | $7,911 | $8,624 |
| Hexcel Corp. |
HXL, |
11.5% | $1,789 | $1,987 | $2,223 |
| Kratos Defense & Security Solutions Inc. |
KTOS, |
10.3% | $1,035 | $1,135 | $1,261 |
| AAR Corp. |
AIR, |
9.8% | $2,138 | $2,390 | $2,588 |
| Howmet Aerospace Inc. |
HWM, |
8.2% | $6,640 | $7,142 | $7,778 |
| Woodward Inc. |
WWD, |
7.7% | $2,995 | $3,289 | $3,471 |
| S&P 500 | SPX | 5.3% | |||
| S&P 500 Aerospace and Defense | 7.3% | ||||
| Source: FactSet | |||||
There are actually 11 stocks on the list, because two common share classes of Heico Corp.
HEI,
HEI.A,
are held within the ITA portfolio. According to Heico’s annual 10-K filing with the Securities and Exchange Commission for 2023 (page 103), the two share classes are identical, except that the Class A shares have one-tenth the voting rights of the regular common shares.
Ratings summary for the best expected revenue growers
Leaving those 11 stocks in the same order, here’s a summary of ratings and price targets among analysts polled by FactSet:
| Company | Ticker | Share buy ratings | Share neutral ratings | Share sell ratings | Feb. 27 price | Consensus price target | Implied 12-month upside potential |
| Axon Enterprise Inc. |
AXON, |
85% | 15% | 0% | $271.82 | $306.13 | 13% |
| Spirit AeroSystems Holdings Inc. Class A |
SPR, |
48% | 52% | 0% | $29.17 | $34.22 | 17% |
| Heico Corp. |
HEI, |
72% | 14% | 14% | $193.52 | $208.29 | 8% |
| Heico Corp. Class A |
HEI.A, |
72% | 14% | 14% | $155.04 | $208.29 | 34% |
| Boeing Co. |
BA, |
67% | 30% | 3% | $201.40 | $261.73 | 30% |
| TransDigm Group Inc. |
TDG, |
64% | 32% | 4% | $1,174.22 | $1,235.80 | 5% |
| Hexcel Corp. |
HXL, |
38% | 52% | 10% | $75.57 | $77.83 | 3% |
| Kratos Defense & Security Solutions Inc. |
KTOS, |
73% | 27% | 0% | $18.68 | $21.91 | 17% |
| AAR Corp. |
AIR, |
100% | 0% | 0% | $64.99 | $81.25 | 25% |
| Howmet Aerospace Inc. |
HWM, |
80% | 10% | 10% | $65.97 | $68.80 | 4% |
| Woodward Inc. |
WWD, |
33% | 67% | 0% | $137.67 | $156.70 | 14% |
| Source: FactSet | |||||||
Analysts’ favorite defense stocks
Going back to our original pared list of 27 aerospace and defense stocks, here are the nine rated buy or the equivalent by at least 75% of analysts polled by FactSet. These are sorted by how much analysts expect the stocks to rise the over the next year:
| Company | Ticker | Share buy ratings | Feb. 27 price | Consensus price target | Implied 12-month upside potential | Two-year estimated sales CAGR through 2025 |
| V2X Inc. |
VVX, |
83% | $37.83 | $59.50 | 57% | 4.4% |
| Triumph Group Inc. |
TGI, |
86% | $14.60 | $20.75 | 42% | 6.0% |
| AAR Corp. |
AIR, |
100% | $64.99 | $81.25 | 25% | 10.0% |
| Teledyne Technologies Inc. |
TDY, |
90% | $424.90 | $500.55 | 18% | 4.6% |
| Axon Enterprise Inc. |
AXON, |
85% | $271.82 | $306.13 | 13% | 22.2% |
| Curtiss-Wright Corp. |
CW, |
86% | $236.03 | $254.20 | 8% | 5.4% |
| Howmet Aerospace Inc. |
HWM, |
80% | $65.97 | $68.80 | 4% | 8.2% |
| Leonardo DRS Inc. |
DRS, |
83% | $22.93 | $23.83 | 4% | 6.9% |
| BWX Technologies Inc. |
BWXT, |
75% | $89.28 | $86.63 | -3% | 5.2% |
| Source: FactSet | ||||||
Before buying any individual security, you should do your own research to form your own opinion about a company’s ability to be competitive. One way to start that process is by clicking on the tickers for more information about each company.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
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