Rising geopolitical tensions have necessitated increased defense spending and accelerated the development of new defense technologies and equipment. Therefore, investors could look to hold fundamentally strong air defense stocks BAE Systems (BAESY), Moog (MOG.A), and CPI Aerostructures (CVU). Keep reading.
Following the Russia-Ukraine geopolitical crisis, the defense sector has seen a surge in demand and spending. Amid heightened tensions, investors could benefit from holding fundamentally strong stocks BAE Systems plc (BAESY), Moog Inc. (MOG.A), and CPI Aerostructures, Inc. (CVU) through the end of the month.
Tensions between the U.S and China have been rising, with things escalating recently after the U.S. shot down an alleged Chinese spy balloon. As geopolitical issues prevail, countries are compelled to safeguard their territories from potential adversaries at any cost. We have thus seen an increased emphasis on enhancing air defense services.
The market is fuelled by surging demand and the increasing number of air-based threats that facilitate both procurement and research and development of newer technologies. The air defense systems market is expected to reach $21.41 billion in 2027 at a CAGR of 7.4%.
Investor’s interest in defense stocks is evident from the iShares U.S. Aerospace & Defense ETF (ITA) 10.9% returns over the past six months.
Given these factors, investors could benefit from fundamentally strong air defense stocks BAESY, MOG.A and CVU.
BAE Systems plc (BAESY)
Based in Farnborough, the United Kingdom, BAESY provides defense, aerospace, and security solutions worldwide. The company operates through five segments: Electronic Systems, Cyber & Intelligence, Platforms & Services (US), Air, and Maritime.
On March 30, 2023, BAESY and Heart Aerospace, a Swedish electric airplane maker, announced a collaboration to define the battery system for Heart’s ES-30 regional electric airplane.
Vice president and general manager of Controls and Avionics Solutions at BAESY, Ehtisham Siddiqui, said, “Our industry-leading solution builds on decades of expertise delivering technologies and systems needed to progress sustainable transportation. We are delighted to collaborate with Heart Aerospace on the innovative battery system for its electric airplane.”
In terms of the trailing-12-month gross profit margin, BAESY’s 66.15% is 121.6% higher than the 29.85% industry average. Its 5.52% trailing-12-month levered FCF margin is 28% higher than the 4.31% industry average. Likewise, its 17.06% trailing-12-month Return on Common Equity is 20.4% higher than the industry average of 14.17%.
BAESY’s revenue increased 8.9% year-over-year to £21.26 billion ($26.48 billion) for the fiscal year that ended December 31, 2022. The company’s net cash flow from operating activities increased 16% from the prior-year period to £2.84 billion ($3.54 billion).
BAESY’s EPS and revenue for the fiscal year 2023, are expected to increase 13.7% and 8% year-over-year to $3.03 and $30.19 billion, respectively. Over the past year, the stock has gained 39.6% to close the last trading session at $50.94.
BAESY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Air/Defense Services industry, it is ranked #5 of 70 stocks. In addition, it has a B grade for Value and Stability. We have also given BAESY grades for Growth, Momentum, Sentiment, and Quality. Get all BAESY ratings here.
Moog Inc. (MOG.A)
MOG.A designs, manufactures, and integrates precision motion and fluid controls and controls systems for original equipment manufacturers and end users in the aerospace, defense, and industrial markets worldwide. The company operates through three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems.
In terms of the trailing-12-month CAPEX/Sales, MOG.A’s 4.31% is 49.2% higher than the 2.89% industry average. Its 0.87x trailing-12-month asset turnover ratio is 8.5% higher than the 0.80x industry average.
For the fiscal first quarter that ended December 31, 2022, MOG.A’s net sales increased 5% year-over-year to $760.10 million. The company’s gross profit increased 5.6% year-over-year to $203.69 million. Moreover, its net EPS came in at $1.44.
MOG.A’s EPS for the quarter ending September 30, 2023, is expected to increase 11.5% year-over-year to $1.52. Its revenue for the quarter ended March 31, 2023, is expected to increase 2.4% year-over-year to $789.40 million. Over the past nine months, the stock has gained 13% to close the last trading session at $92.27.
MOG.A’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #3 in the same industry. The stock has a B grade for Growth, Value, and Stability. Click here to access the POWR Ratings of MOG.A for Momentum, Sentiment, and Quality.
CPI Aerostructures, Inc. (CVU)
CVU engages in the contract production of structural aircraft parts for fixed-wing aircraft and helicopters in the commercial and defense markets. The company also offers aerosystems and supplies parts for maintenance, repair, and overhaul (MRO), as well as kitting contracts.
In terms of the trailing-12-month net income margin, CVU’s 11.01% is 65.8% higher than the 6.64% industry average. Its 15.44% trailing-12-month Return on Total Assets is 195.3% higher than the 5.23% industry average. Likewise, its 1.46x trailing-12-month asset turnover ratio is 81.1% higher than the industry average of 0.80x.
CVU’s gross profit increased 8.7% year-over-year to $16.30 million for the fourth quarter that ended December 31, 2022. Its income from operations increased 53.8% year-over-year to $4.89 million. Additionally, its net income increased 34.5% year-over-year to $9.18 million, while its EPS came in at $0.74, representing a 32.1% increase from the prior-year quarter.
Over the past six months, the stock has gained 56.2% to close the last trading session at $3.47.
It is no surprise that CVU has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Growth and Value and a B for Sentiment. It is ranked first in the Air/Defense Services industry.
Click here to see the additional POWR Ratings of CVU for Momentum, Stability, and Quality.
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BAESY shares were trading at $51.31 per share on Thursday morning, up $0.37 (+0.72%). Year-to-date, BAESY has gained 23.60%, versus a 7.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research.With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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