International Appetite for US Defense Stocks is Still Strong
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
United States military expenditures account for 19% of our total federal spending and 28% of our revenues. For 2012 our estimated defense budget is expected to be in the range of $1.0 - $1.4 trillion. There is no question that when it comes to military spending, America still remains to be in the lead from China and Russia. But our military strength sometimes forces investors to forget about the international demand for US defense stocks, which doesn't care whether GOP or Democrats are running the show. Our advancement in technology is not only recognized, but is also preferred across the globe.
One of those technologies that is not kept in secret is AeroVironment's (NASDAQ: AVAV) first robotic hummingbird that can pester insurgents and simultaneously gather information. This two winged hummingbird, which was introduced last year, could fly in and out of small entrances recording its surroundings for 10 minutes with a tiny attached camera for reconnaissance missions. AeroVironment lost nearly 20% since then, but the company is beginning to see international contracts this year. Danish Armed Forces recently selected AeroVironment's Small Unmanned Aircraft Systems Puma AE by placing a $9.6 million contract, but the international revenue is only a drop in the bucket from the 7,500 unmanned aircrafts that are already in the Pentagon's inventory.
The other half of AeroVironment's international revenue isn't derived from military spending, but from the Efficient Energy Systems business segment. In 2012, the company rolled out thousands of 240-Volt EV charge docks throughout the U.S. and Canada as well as won new home charging contracts from BMW and Mitsubishi Motors. Despite volatile earnings surprises, Aerovironment delivered a 16% fully diluted EPS growth rate and an 11% revenue growth. This small cap trades with a high P/E ratio of 18.47, compared to the Aerospace & Defense industry's 13.3, and is showing strong support near $22 per share.
Back in the 1940's Raytheon (NYSE: RTN) began manufacturing guided missiles, and it was in 1950 when its Lark missile was able to destroy a target aircraft in flight. Fast forward 60 years and it was testing its ray gun on prisoners of Castaic jail and using them as test subjects for a new non-lethal weapon system that fires an invisible heat beam which is capable of causing unbearable harm. In 1980s and 1990s Raytheon aggressively grew through a series of acquisitions of Beech Aircraft Corp., E-Systems, and Defense Systems & Electronics Group, at the time a defense unit of Texas Instruments (NASDAQ:TXN). Currently, this $18 billion defense technology stock has international orders and operations all over the globe, including Canada, Japan and Spain. It received its international exposure during the Persian Gulf War when its Patriot missile shocked the world with its success rate. Raytheon's sales from this surface-to-air missile systems skyrocketed from countries such as Germany, United Arab Emirates, Jordan, Japan, Israel, Netherlands, and Spain.
Although dividend lovers cling to Raytheon's 3.64% yield, the stock attracted a new wave of Foolish growth investors with its impressive 30% run in the last twelve months. It beat earnings five consecutive quarters and trades with a P/E of 9.55. With international orders expected to comprise 40% of their total backlog, Raytheon definitely has more room for upside.
And we cant leave out the giant of the aerospace and defense industry, Boeing Co. (NYSE: BA). Its latest $5 billion Boeing 737 orders from Alaska Airlines is just a speck of what's backlogged internationally. After losing the order for 35 Dreamliners from Qantas Airlines, the company still boasts a backlog of more than 900 planes. Judging by the chart below and how many of its planes Boeing has actually delivered, the manufacturer is not in a position to worry of cancellations, its suppliers are! The green bar indicates the number of completed planes by Boeing for a specific airline out of the total order count indicated by the light blue bar.
The cancellation was a struggle for Qantas Airlines to compete with middle eastern airlines due to overall traveling slowdown, nothing company specific that could be pegged to the plane manufacturer. With Boeing having plenty on its books to strive until 2015, right now would be a great entry opportunity.
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edgarambart30 has no positions in the stocks mentioned above. The Motley Fool owns shares of Raytheon Company. Motley Fool newsletter services recommend AeroVironment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.