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3 Defense Stocks Could Rise On Escalating U.S.-Iran Tensions

By (Jesse Cohen/ 08, 2020 04:25AM ET
3 Defense Stocks Could Rise On Escalating U.S.-Iran Tensions
By (Jesse Cohen/   |  Jan 08, 2020 04:25AM ET
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Tensions between the United States and Iran are at new highs after Iran launched 15 ballistic missiles at U.S. forces in Iraq on Tuesday, Jan 7.

This attack on two military bases was an act of retaliation for a drone strike ordered by U.S. President Donald Trump late last week in Iraq that killed Iranian military commander Qassem Soleimani, widely seen as Iran's second most powerful figure behind Supreme Leader Ayatollah Ali Khamenei.

Even before Iran responded to the drone strike, the U.S. was deploying roughly 4,500 soldiers, as well as a wide array of ships, planes and other weapons to the region.

Further escalation in the U.S.-Iran conflict would likely benefit the prices of these three defense sector stocks:

1. Raytheon: Largest Guided Missile Producer

Raytheon (NYSE:RTN) is the fourth-largest military contractor as well as an industrial corporation with core manufacturing concentrations in weapons, military and commercial electronics. The defense giant saw its 2018 annual revenue rise to $27.1 billion, 87% of which came from arms sales and defense contracts.

With the hostility between Washington and Tehran threatening to turn into a full-blown war, it makes sense for this major U.S. defense contractor to be on our radar.

The Waltham, Massachusetts-based firm is the largest producer of guided missiles and a leading manufacturer of missile defense systems. Raytheon’s portfolio includes radars and ballistic missile interceptors, such as the Patriot missile system. It also makes a wide range of air-to-surface, surface-to-air, air-to-air, and surface-to-surface precision-guided missiles.

Raytheon has a market cap of $63.3 billion and shares closed at $226.54 on Tuesday, not far from the recent record high of $232.43 reached on Jan. 6.

RTN Daily Chart
RTN Daily Chart

The technology and innovation leader next reports earnings on Jan. 24. Consensus calls for earnings per share (EPS) of $3.12 for the fourth quarter, up 6% from earnings of $2.93 per share in the year-ago period. Revenue is forecast to increase 8% from the same period a year earlier to $7.98 billion.

2. Lockheed Martin: Leading F-35 Fighter Jet Manufacturer

Lockheed Martin (NYSE:LMT), headquartered in Bethesda, Maryland, is by far the largest defense contractor in the world and the Pentagon’s primary provider. The aerospace and defense juggernaut saw its 2018 annual revenue climb to $53.8 billion, 88% of which came from sales of military services.

It’s no surprise that Lockheed Martin made our list, considering its position as a global manufacturing leader of a wide range of military services, including fighter jets, combat ships, hypersonic missiles and missile defense systems. The corporation brought in $53.8 billion in sales in 2018, the majority of it from its aeronautics and defense businesses.

Lockheed is best known as a developer and manufacturer of a wide range of military aircraft, including the F-16, F-22, and F-35 fighter jets, of which the U.S. military is the primary buyer. The F-35 fighter jet is Lockheed's biggest growth driver and accounts for about a third of the company's total revenue.

Shares ended at $414.50 yesterday, within sight of their all-time peak of $417.00 touched on Jan. 6. The company has a market cap of $116.5 billion.

LMT Daily Chart
LMT Daily Chart

The arms behemoth is projected to report fourth quarter results on Jan. 23. Consensus estimates call for the company to post earnings of $5.04 per share, while revenue is forecast to grow approximately 6% from the same quarter a year earlier to $15.25 billion.

3. Northrop Grumman: Major Player In Global Drone Market

Northrop Grumman (NYSE:NOC) located in Hawthorne, California, is the third-largest weapons manufacturer and military services provider. The company raked in $30.1 billion in revenue in 2018, 84% of which were from defense contracts.

As a major subcontractor on Lockheed's F-35 and producer of drones such as the Global Hawk, Northrop Grumman is well-positioned to profit from elevated tensions in the Middle East.

The aerospace corporation has the largest share of the drone market and makes the RQ-180 stealth drone, which can evade radar, as well as the $120 million RQ-4 Global Hawk, which can reach up to 60,000 feet. In addition, the company is known for its B-2 stealth bomber line and is leading the development of the B-21 Raidera long-range, stealth bomber capable of delivering conventional and thermonuclear weapons.

Shares settled at $374.97 last night, just below their record high of $383.89 scaled on Sept. 26. Northrop Grumman has a valuation of $63.2 billion.

NOC Daily Chart
NOC Daily Chart

The global security provider is expected to publish fourth quarter earnings on Jan. 30. Consensus calls for EPS of $4.77, while revenue is expected to rise about 8% from the same period a year earlier to $8.85 billion.

3 Defense Stocks Could Rise On Escalating U.S.-Iran Tensions

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3 Defense Stocks Could Rise On Escalating U.S.-Iran Tensions

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Comments (1)
Abtin Irandoost
Abtin Irandoost Jan 08, 2020 5:25PM ET
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Don't recommend people making an extra dime on other people's (mostly innocent) lives. Shalom
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