Defense Holding Their Ground
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Raytheon (NYSE: RTN) recently reported that their second quarter earnings rose 7.5%. The company slated this increase as a result of lower costs and a widened profit margin. As a result of the increase, Raytheon raised its earnings outlook for the year. Per-share earnings of $5.70 to $5.85 are now expected, up from $5.55 to $5.70. As Pentagon spending remains a topic for debate, Raytheon and its peers have been expanding into new markets and territories. Raytheon is considered one of the most resilient U.S. Defense contractors, due in large part to its diversification and limited reliance on big-budget projects. Raytheon is currently bidding on a project to provide Turkey with a missile defense system.
One of Raytheon’s peers, Lockheed Martin (NYSE: LMT), also recently posted a second quarter earnings increase. In addition to the 5.3% earnings increase the company also raised its earnings outlook for the year by 20 cents. Lockheed Martin is the largest in its sector by sales. Lockheed is also considered one of the defense contractors most vulnerable to cuts in Pentagon spending mainly due to its role in large projects, like the Joint Strike Fighter. This could hurt Lockheed’s resiliency in the face of budget cuts from the Pentagon. Their international footprint is small and they depend largely on U.S. contracts. Still, the company appears to be hanging in there.
Honeywell (NYSE: HON) also recently reported a strong second quarter. Earnings increased 12% while sales were up 4%. Their second quarter increase was the highest in more than three years and beat analysts’ estimates. This was due in large part to their commercial aerospace sales. Honeywell, like Raytheon, has chosen not to put all of its faith in the U.S. Government's contracts. The company has had a strong performance in emerging markets as well as Europe. Honeywell should also prove resilient in comparison to its peers. Spending on commercial aircraft is increasing and this is a good point of diversification for the company.
Arguably, though, election years always seem to prove difficult for defense contractors. Government spending remains in a state of limbo throughout this period. Defense spending is a hot button issue around election time and politicians are all too wary of broaching the subject. Most of the talk leans toward cutting the defense budget. However, normally once the elections are over and the newly elected take office, changes are slow and small. Still, the lead up to that time always appears to err on the more cautious side of things. Raytheon, Lockheed Martin, and Honeywell should all continue to see high levels of growth.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Lockheed Martin and Raytheon Company. 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.
