Updated on September 23rd, 2022 by Bob Ciura
Investing in defense stocks has been a big win for shareholders. As of August 31st 2022, the iShares Dow Jones U.S. Aerospace & Defense ETF (ITA) generated annualized returns of 13.5% per year over the past 10 years.
With this in mind, we created a downloadable spreadsheet that focuses on defense stocks.
The list was derived from two major defense industry-focused exchange traded funds, ITA and the SPDR S&P Aerospace & Defense ETF (XAR).
You can download an Excel spreadsheet of all defense stocks (with metrics that matter such as dividend yields and price-to-earnings ratios) by clicking the link below:
Is there more room for these stocks to run going forward?
This article will look at the top 6 defense stocks according to the Sure Analysis Research Database.
We rank these 6 defense stocks by our expected 5-year expected returns.
Table of Contents
- Defense Stock #6: Northrop Grumman (NOC)
- Defense Stock #5: General Dynamics (GD)
- Defense Stock #4: Lockheed Martin (LMT)
- Defense Stock #3: Huntington Ingalls Industries Inc. (HII)
- Defense Stock #2: Raytheon Technologies (RTX)
- Defense Stock #1: L3Harris Technologies (LHX)
Defense Stock #6: Northrop Grumman (NOC)
- Estimated Total Returns: 3.5%
Northrop Grumman Corporation is one of the five largest US aerospace and defense contractors based on revenue. The company reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors and systems for surveillance and targeting), Defense Systems (sustainment and modernization, directed energy, tactical weapons), and Space Systems (missile defense, space systems, hypersonics and space launchers).
Northrop Grumman makes the B-2 Spirit, E-2D, E-8C, RQ-4 Global Hawk, MQ-4C Triton, and MQ-8B/C Fire Scout.
Source: Investor Presentation
Northrop Grumman released weaker results for Q2 FY 2022 on July 28th, 2022. Company-wide revenue decreased (-4%) to $8,801M from $9,151M and diluted adjusted earnings per share decreased (-6%) to $6.06 from $6.42 on a year-overyear basis. Revenue for Aeronautics Systems was down (-13%) to $2,534M from $2,913M in the prior year due to lower volumes in Manned Aircraft and Autonomous Systems.
The company won $13B in contracts in Q2 with a 1.48 book-to-bill ratio including $3.5B for the F-35, $2.1B for Amazon’s Project Kuiper, and $0.5B for Triton. The total backlog is ~$80.0B at end of the quarter of which $34.4B is funded. The company guided for $36,200M to $36,600M in sales and $24.50 to $25.10 earnings per share in 2022.
Click here to download our most recent Sure Analysis report on Northrop Grumman (preview of page 1 of 3 shown below):
Defense Stock #5: General Dynamics (GD)
- Estimated Annual Returns: 3.7%
General Dynamics has increased its dividend for 30 years in a row. As a result, it is on the exclusive Dividend Aristocrats list.
General Dynamics operates four business divisions. Aerospace produces the high-end Gulf Stream private jet. Combat Systems makes combat vehicles like the Abrams battle tank. The company’s Aerospace segment is focused on business jets and services while the remainder of the company is defense.
Source: Investor Presentation
General Dynamics reported Q2 2022 results on July 27th, 2022. For the quarter, company-wide revenue was flat at $9,189M from $9,220M and diluted earnings per share increased 5.4% to $2.75 from $2.61 on a year-over-year basis.
The company-wide backlog is at $87.6B of which ~$67.9B is funded and the unfunded backlog is ~$19.7B (the majority in Marine Systems and Technologies). General Dynamics won several contracts for Marine Systems, Combat Systems, and Technologies. The company increased guidance to revenue of ~$39.45B and earnings per share of ~$12.15 in 2022.
Click here to download our most recent Sure Analysis report on General Dynamics (preview of page 1 of 3 shown below):
Defense Stock #4: Lockheed Martin (LMT)
- Estimated Annual Returns: 4.6%
With 20 years of dividend increases, Lockheed Martin is a blue chip stock.
Lockheed Martin Corporation is the world’s largest defense company. About 60% of the company’s revenues comes from the US Department of Defense, with other US government agencies (10%) and international clients (30%) making up the remainder.
The company consists of four business segments: Aeronautics (~40% sales) – which produces military aircraft like the F-35, F-22, F-16 and C-130; Rotary and Mission Systems (~26% sales) – which houses combat ships, naval electronics, and helicopters; Missiles and Fire Control (~16% sales) – which creates missile defense systems; and Space Systems (~17% sales) – which produces satellites.
Lockheed Martin reported weaker results for Q2 2022 on July 19th, 2022. Company-wide net sales decreased to $15,446M from $17,029M and diluted GAAP earnings per share fell to $1.16 from $6.52 on a year-over-year basis. The quarter was impacted by lower sales in all segments and pension charges, investment losses, deferred compensation, and debt refinancing costs.
Lockheed Martin’s backlog is approximately $134.64B with an increase in Missiles and Fire Controls, Space and Rotary, and Mission Systems and a decline in the Aeronautics.
Lockheed Martin guided lower for ~$65,250B in sales and ~$21.55 diluted earnings per share in 2022.
Click here to download our most recent Sure Analysis report on LMT (preview of page 1 of 3 shown below):
Defense Stock #3: Huntington Ingalls Industries Inc. (HII)
- Estimated Annual Returns: 5.2%
Huntington Ingalls Industries primarily builds nuclear and non-nuclear ships for the U.S. Navy. The company reports three business segments: Newport News Shipbuilding, Ingalls Shipbuilding, and Mission Technologies. Newport News builds nuclear powered aircraft carriers and submarines.
Ingalls builds surface combatant ships, amphibious assault ships, and Coast Guard cutters. Mission Technologies provides fleet maintenance and modernization, IT support, nuclear management and operations, and unmanned systems. The company had approximately $9.5B in revenue in 2021.
Huntington Ingalls reported Q2 2022 results on August 4th, 2022. Company-wide revenue rose 19.3% to $2,662M compared to $2,231M and diluted earnings per share grew 38.8% to $4.44 from $3.20 on a year-over-year basis. Operating margins increased 88 bps to 8.5% from 7.6%.
Source: Investor Presentation
Revenue from Ingalls Shipbuilding decreased (-1.8%) to $658M from $670M driven by lower revenue in surface combatant ships offset by assault ships. Newport News revenue rose 5.1% due to higher aircraft carrier volumes offset by nuclear support services and flattish submarine volumes. Revenue for Mission Technologies increased 153.2% to $600M due to gains from the Alion acquisition.
Huntington Ingalls guided for ship building revenue of $8.2B – $8.5B and margins of 8.0% to 8.1%. The company guided higher for Mission Technologies revenue of ~$2.6B and margins of ~2.5%. Huntington Ingalls’ total backlog now stands at $47.2B after about $2.0B in contract wins of which $24.6B is funded.
Click here to download our most recent Sure Analysis report on HII (preview of page 1 of 3 shown below):
Defense Stock #2: Raytheon Technologies (RTX)
- Estimated Annual Returns: 7.3%
Raytheon Technologies was created on April 3rd 2020, after the completion of the merger between Raytheon
(previous ticker: RTN) and United Technologies (previous ticker: UTX), following United Technologies’ spin-offs of its Carrier (CARR) and Otis (OTIS) businesses.
The combined business is one the largest aerospace and defense companies in the world with $64 billion in 2021 sales and a global team of 174,000 employees, including 60,000 engineers and scientists. The company has four segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense.
On April 25th, 2022, Raytheon Technologies increased its quarterly dividend 7.8% to $0.55.
On July 26th, 2022, Raytheon Technologies reported Q2 results for the period ending June 30th, 2022. This marks the ninth quarter of reporting all four segments together as a combined business. Revenue grew 2.7% to $16.3 billion, but was $300 million less than expected. Adjusted net income equaled $1.722 billion, or $1.16 per share, compared to $1.565 billion, or $1.03 per share. Adjusted earnings-per-share was $0.05 ahead of estimates.
Source: Investor Presentation
Results were up 10% and 16% in the Collins Aerospace and Pratt & Whitney segments, respectively, while Missiles & Defense and Intelligence & Space segments were down -11% and -6% respectively. Raytheon Technologies backlog at the end of the quarter was $161 billion, compared to $154 billion in the first quarter, of which $96 billion was from commercial aerospace and $65 billion was from defense.
Raytheon Technologies reaffirmed prior guidance for 2022, with the company still expecting sales of $67.75 billion to $68.75 billion and adjusted earnings-per-share of $4.60 to $4.80.
Click here to download our most recent Sure Analysis report on Raytheon (preview of page 1 of 3 shown below):
Defense Stock #1: L3Harris Technologies (LHX)
- Estimated Annual Returns: 8.9%
L3Harris Technologies (LHX) is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth largest defense contractor. Shareholders of L3 Technologies received 1.30 shares of Harris Corporation for each of their own shares outstanding.
The company now reports four business segments: Integrated Mission Systems (30% of revenue), Communication Systems (23% of revenue), Space and Airborne Systems (25% of revenue), and Aviation Systems (23% of revenue).
The majority of the L3Harris’ sales are to the US Government or to other defense contractors. The company had revenue of about $17.8B in 2021. L3Harris reported Q2 2022 results on July 28th, 2022. Company-wide revenue fell -6% to $4,135M and diluted non-GAAP EPS decreased -2% to $3.23 from $3.28 on year-over-year basis.
Source: Investor Presentation
Integrated Mission Systems segment revenue fell -6% due to declines in ISR, Electro Optical, and Maritime, offset by increases in Commercial Aviation. Revenue for Space & Airborne Systems decreased -1% to $1,498M from $1,510M.
Growth came from Space offset by declines in Intel & Cyber, Mission Networks, and the F-35. Communications systems revenue decreased -12% to $993M from $1,127M due to lower volumes in Broadband Communications and Tactical Communications offset by Public Safety.
The funded book-to-bill ratio was 1.14. The company guided for $17.3B – $17.7B in revenue and $13.35 – $13.65 for EPS in 2022.
Click here to download our most recent Sure Analysis report on LHX (preview of page 1 of 3 shown below):
Defense stocks have been among the hottest stocks in the market in the past decade. This has caused many stocks in this sector to reach valuations well above their historical average.
Of the 6 defense stocks on the list, none currently meet the requirement for a buy rating, due to their expected returns being below our buy threshold of 10%.
While defense stocks could continue to perform well, we encourage investors to wait for a pullback in several of these defense stocks due to valuation concerns.
The following databases of stocks contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks