5 Defense Stocks To Gain From UTX-Raytheon Merger

Defense stocks moved higher on Jun 10 after United Technologies (UTX - Free Report) and Raytheon (RTN - Free Report) agreed to merge. The new entity is expected to generate annual sales of around $74 billion. Further, it will become the second-largest U.S. aerospace and defense company after Boeing (BA - Free Report) once the merger is completed in 2020. This is only the most-recent such agreement for a space witnessing a spate of deals.

In fact, defense stocks have emerged as power-packed performers this year. An end to budget sequestration has proven to be beneficial for the sector. With defense spending likely to remain high even if a change of guard takes place at the White House, it makes sense to add select defense stocks to your portfolio at this point.

United Technologies-Raytheon Deal Extends Spate of Mergers

Following the completion of the merger, the new entity, slated to be called Raytheon Technologies Corp will be valued at around $100 billion. This is significantly lower than the two companies’ combined market value of $166 billion since it takes into account planned spinoffs. The deal will be completed in the first half of 2020 once United Technologies hives off its Carrier climate control and Otis elevator businesses. 

But the merger of United Technologies and Raytheon is only the latest for a sector, which has been witnessing furious M&A activity. Last year, United Technologies bought Rockwell Collins for $30 billion in its quest to become a pure-play aerospace and defense stock. Further, Northrop Grumman (NOC - Free Report) decided to acquire Orbital ATK for $9.2 billion while Harris (HRS - Free Report) and L3 (LLL - Free Report) merged in a deal valued at $33.5 billion.

Defense Among the Hottest Plays for 2019

As of Jun 10, the S&P 500 Aerospace and Defense sector was up 23% year to date, taking into account dividends reinvested. In contrast, the broader S&P 500 has gained 16% over the same period. The sector has outperformed the broader index on a dividends reinvested basis over the last five, 10 and 15 years.

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