A major part of the first-quarter earnings season is behind us and a combination of factors including oil price turbulence and global growth uncertainties have weighed on the results (read: Global Growth Worries Loom: ETFs to Play).
Despite headwinds, aerospace & defense, a relatively smaller sector within the S&P 500, held up well this past quarter. However, it’s not surprising given the low estimates, which had fallen ahead of this reporting cycle. Aerospace and defense stocks have reported better-than-expected results despite sluggish growth numbers. As per the Zacks Earnings Trend report, earnings declined 6.6% while revenues increased 3.8% year over year. The earnings beat ratio of the aerospace and defense companies is 77.8%, while the revenue beat is 88.9% (see all industrials ETFs here).
The U.S. defense sector performed modestly on the back of elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East and Syria have forced several countries to step up their defense, in turn boosting demand for defense products. Moreover, the aerospace and defense industry has gained from fleet renewals at airlines worldwide. Demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare today have driven up sales in this sector.
Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook.
Quarterly Earnings in Focus
Pentagon’s prime contractor, Lockheed Martin Corp. ( (NYSE:LMT) ), reported an encouraging first quarter. It reported better-than-expected earnings and revenues with both beating the Zacks Consensus Estimate by 2.8% and 5.5%, respectively. Lockheed Martin raised its 2016 outlook and now expects earnings of about $11.50–$11.80 per share (earlier projection: $11.45–$11.75) on revenues of approximately $49.6 billion to $51.1 billion (earlier projection: $49.5 billion to $51 billion). The stock jumped after the earnings release on solid outlook, impressive revenue growth and potential share buybacks.
Aerospace giant, The Boeing Company ( (NYSE:BA) ) delivered first-quarter 2016 adjusted earnings of $1.74 per share, missing the Zacks Consensus Estimate by 3.9%. Earnings also decreased 12% year over year. Revenues came in at $22.63 billion for the quarter, exceeding the Zacks Consensus Estimate of $21.24 billion and increasing 2% from the year-ago level. For 2016, the company still expects earnings to be in the range of $8.15−$8.35 per share on revenues of $93−$95 billion. Investors reacted positively to the company’s results.
Northrop Grumman Corp. ( (NYSE:NOC) ) reported upbeat first-quarter 2016 results with revenues and earnings beating the Zacks Consensus Estimate by 0.8% and 12.1%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.40 to $10.70 per share (prior projection: $9.90–$10.20) on revenues of $23.5 billion to $24 billion in 2016. The stock gained significantly after the company released its results.
General Dynamics Corp.’s ( (NYSE:GD) ) first quarter earnings of $2.34 per share topped both the Zacks Consensus Estimate and the year-ago figure of $2.14 by 9.3%. Revenues of $7.7 billion beat the Zacks Consensus Estimate by 0.4% benefiting from strong demand for defense products during the quarter. Investors reacted positively with the stock gaining after the company released its results.
United Technologies Corporation ( (NYSE:UTX) ) reported first-quarter adjusted earnings of $1.47 per share, up 2.1% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.39. Quarterly revenues of $13.4 billion also beat the Zacks Consensus Estimate of $13 billion. However, volatility in foreign currency adversely impacted the revenues of most of the company's segments during the reported quarter. The company reaffirmed its 2016 guidance. The stock gained post releasing results.
ETFs to Play
The gains in aerospace and defense companies have put the spotlight on their ETFs. Below, we have these ETFs in detail: (read: The Complete Guide to Aerospace & Defense ETFs).
iShares U.S. Aerospace & Defense ETF (ITA)
The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 37 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being the top five stocks. All of them together account for more than 38% of the fund assets. With an asset base of nearly $682.7 million, the fund trades in moderate volumes of roughly 83,000 shares a day and charges an annual fee of 45 bps per year. The fund returned 1.25% in the last 10 days (as of May 5, 2016) and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Can Aerospace & Defense ETFs Protect Your Portfolio in 2016?).
PowerShares Aerospace & Defense Portfolio (PPA)
PPA follows the SPADE Defense Index, with 50 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy almost one third of total fund assets. The product has managed to garner nearly $296 million in assets so far and trades in an average volume of 76,000 shares per day. It charges 66 bps in annual fees and gained 0.40% in past 10 days. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR S&P Aerospace & Defense ETF (XAR)
XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 33 stocks. Northrop Grumman, Lockheed Martin, General Dynamics and Boeing score among the top 10 holdings. This product has attracted an AUM of nearly $166.9 million and exchanges nearly 18,000 shares in hand per day. It charges 35 bps in fees per year and gained 1% in the past 10 days. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: ETF Series Solutions Plans an Aerospace & Defense ETF).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
ISHARS-US AEROS (ITA): ETF Research Reports
PWRSH-AERO&DEF (PPA): ETF Research Reports
SPDR-SP AER&DEF (XAR): ETF Research Reports
Original post
Zacks Investment Research
Despite headwinds, aerospace & defense, a relatively smaller sector within the S&P 500, held up well this past quarter. However, it’s not surprising given the low estimates, which had fallen ahead of this reporting cycle. Aerospace and defense stocks have reported better-than-expected results despite sluggish growth numbers. As per the Zacks Earnings Trend report, earnings declined 6.6% while revenues increased 3.8% year over year. The earnings beat ratio of the aerospace and defense companies is 77.8%, while the revenue beat is 88.9% (see all industrials ETFs here).
The U.S. defense sector performed modestly on the back of elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East and Syria have forced several countries to step up their defense, in turn boosting demand for defense products. Moreover, the aerospace and defense industry has gained from fleet renewals at airlines worldwide. Demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare today have driven up sales in this sector.
Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook.
Quarterly Earnings in Focus
Pentagon’s prime contractor, Lockheed Martin Corp. ( (NYSE:LMT) ), reported an encouraging first quarter. It reported better-than-expected earnings and revenues with both beating the Zacks Consensus Estimate by 2.8% and 5.5%, respectively. Lockheed Martin raised its 2016 outlook and now expects earnings of about $11.50–$11.80 per share (earlier projection: $11.45–$11.75) on revenues of approximately $49.6 billion to $51.1 billion (earlier projection: $49.5 billion to $51 billion). The stock jumped after the earnings release on solid outlook, impressive revenue growth and potential share buybacks.
Aerospace giant, The Boeing Company ( (NYSE:BA) ) delivered first-quarter 2016 adjusted earnings of $1.74 per share, missing the Zacks Consensus Estimate by 3.9%. Earnings also decreased 12% year over year. Revenues came in at $22.63 billion for the quarter, exceeding the Zacks Consensus Estimate of $21.24 billion and increasing 2% from the year-ago level. For 2016, the company still expects earnings to be in the range of $8.15−$8.35 per share on revenues of $93−$95 billion. Investors reacted positively to the company’s results.
Northrop Grumman Corp. ( (NYSE:NOC) ) reported upbeat first-quarter 2016 results with revenues and earnings beating the Zacks Consensus Estimate by 0.8% and 12.1%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.40 to $10.70 per share (prior projection: $9.90–$10.20) on revenues of $23.5 billion to $24 billion in 2016. The stock gained significantly after the company released its results.
General Dynamics Corp.’s ( (NYSE:GD) ) first quarter earnings of $2.34 per share topped both the Zacks Consensus Estimate and the year-ago figure of $2.14 by 9.3%. Revenues of $7.7 billion beat the Zacks Consensus Estimate by 0.4% benefiting from strong demand for defense products during the quarter. Investors reacted positively with the stock gaining after the company released its results.
United Technologies Corporation ( (NYSE:UTX) ) reported first-quarter adjusted earnings of $1.47 per share, up 2.1% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.39. Quarterly revenues of $13.4 billion also beat the Zacks Consensus Estimate of $13 billion. However, volatility in foreign currency adversely impacted the revenues of most of the company's segments during the reported quarter. The company reaffirmed its 2016 guidance. The stock gained post releasing results.
ETFs to Play
The gains in aerospace and defense companies have put the spotlight on their ETFs. Below, we have these ETFs in detail: (read: The Complete Guide to Aerospace & Defense ETFs).
iShares U.S. Aerospace & Defense ETF (ITA)
The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 37 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being the top five stocks. All of them together account for more than 38% of the fund assets. With an asset base of nearly $682.7 million, the fund trades in moderate volumes of roughly 83,000 shares a day and charges an annual fee of 45 bps per year. The fund returned 1.25% in the last 10 days (as of May 5, 2016) and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Can Aerospace & Defense ETFs Protect Your Portfolio in 2016?).
PowerShares Aerospace & Defense Portfolio (PPA)
PPA follows the SPADE Defense Index, with 50 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy almost one third of total fund assets. The product has managed to garner nearly $296 million in assets so far and trades in an average volume of 76,000 shares per day. It charges 66 bps in annual fees and gained 0.40% in past 10 days. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR S&P Aerospace & Defense ETF (XAR)
XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 33 stocks. Northrop Grumman, Lockheed Martin, General Dynamics and Boeing score among the top 10 holdings. This product has attracted an AUM of nearly $166.9 million and exchanges nearly 18,000 shares in hand per day. It charges 35 bps in fees per year and gained 1% in the past 10 days. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: ETF Series Solutions Plans an Aerospace & Defense ETF).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
ISHARS-US AEROS (ITA): ETF Research Reports
PWRSH-AERO&DEF (PPA): ETF Research Reports
SPDR-SP AER&DEF (XAR): ETF Research Reports
Original post
Zacks Investment Research