Outlook For Aerospace-Defense Stocks Remains Encouraging

The Zacks Aerospace-Defense industry comprises firms that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.

The industry also includes cyber security players that offer information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions.

A portion of revenues for this industry comes from defense contractors that offer spare parts, aircraft modification, ship repair and overhaul services and supply chain management services.  

Here are the three major industry themes:

  • A steady improvement in global air traffic has pushed up commercial airplane demand, thereby giving an impetus to the U.S. Aerospace and Defense industry. Boeing, the largest jet maker, expects that the world will need 42,730 new planes, worth $6.35 trillion, between 2018 and 2037, per its latest Commercial Market Outlook (CMO). Impressively, this estimate reflects a 4.1% improvement in the company’s earlier 20-year outlook. Such improved projection is based on strong air-traffic trends in the emerging markets of China and India, along with the established markets of Europe and North America. On the other hand, increasing jet demand is expected to drive the aviation services market. To this end, Boeing expects commercial aviation services market to grow 4.2% annually, thereby reaching a value of $8.8 trillion over the next 20 years. This once again should significantly drive the top line of this industry.
  • With the United States being the largest supplier of defense equipment, it is undoubtedly a golden era for the nation’s aerospace and defense stocks. U.S. defense majors are expanding their foreign markets rapidly, particularly taking advantage of regional tensions prevailing in the Middle East lately. According to the latest report from Aerospace Industries Association (AIA), in 2017 the U.S. defense industry generated $20 billion worth of exports, which grew a solid 75% over the past decade. With no indication of the global geopolitical unrest coming to an end and emerging nations like Japan and India raising their defense budgets, this winning streak is expected to continue in the near term.
  • The industry is facing impending retirements and a shortage of trained technical graduates. Per a recent report by AIA, approximately 60% of aerospace and defense employees are more than 45 years old versus 44% in the overall U.S. workforce. This growing number of aged employees, coupled with high attrition rates and increased labor mobility, poses serious risks to the industry. In fact, employment in this industry fell 1.6% over the last five years in 2017. If the trend persists, it may impact business growth over the near term.
1 2 3 4
View single page >> |

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.