The Zacks aerospace defense industry includes companies that primarily design and manufacture heavy construction products, such as military jets and helicopters, tankers and other combat vehicles, missiles, combat ships and auxiliary ships, submarines, bombs and firearms, transport vehicles, military satellites and a few more.

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

Part of this industry's revenue comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply chain management services.

Here are the three main themes of the industry:

  • The steady improvement in global air traffic has led to increased demand for commercial aircraft, giving a boost to the US aerospace and defense industry. Boeing, the largest manufacturer of jet aircraft, predicts that the world will need 42,730 new aircraft, worth $ 6.35 billion, between 2018 and 2037, according to its latest outlook. market (Commercial Market Outlook – CMO). Impressively, this estimate reflects a 4.1% improvement in the company's outlook for the next 20 years. This improved projection builds on strong air traffic trends in the emerging markets of China and India, as well as established markets in Europe and North America. In addition, the growing demand for jet aircraft is expected to stimulate the air services market. To this end, Boeing expects the market for commercial aviation services to grow by 4.2% per year, reaching $ 8.8 trillion over the next 20 years. This should once again lead significantly the front line of this industry.
  • The United States being the largest supplier of defense equipment, it is undoubtedly a golden era for aerospace and defense stocks. Major US defense companies are rapidly expanding their foreign markets, taking advantage of recent regional tensions in the Middle East. According to the latest report from the Aerospace Industries Association (AIA), the US defense sector generated in 2017 $ 20 billion worth of exports, which grew by 75% over the previous year. during the last decade. In the absence of indication of the end of the global geopolitical unrest and the increase of defense budgets of emerging countries like Japan and India, this series of victories should continue to short term.
  • The industry is facing impending retirements and a shortage of trained technical graduates. According to a recent AIA report, approximately 60% of aerospace and defense employees are over 45 years old, compared to 44% of the total US workforce. This growing number of older employees, coupled with high attrition rates and increased mobility of the workforce, poses serious risks for the sector. In fact, employment in this industry has decreased by 1.6% over the last five years in 2017. If the trend continues, this could have an impact on business growth in the near term.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Zacks' ranking in the industry reflects bright prospects"data-reactid =" 19 ">Zacks' ranking in the industry reflects bright prospects

The industry of Zacks Aerospace-Defense is housed in the larger area of ​​Zacks Aerospace. It carries the number 75 Zacks industry, which places it in the top 30% of over 250 Zacks industries.

The Zacks industry ranking, which is roughly the average of Zacks' rankings for all members, indicates good short-term prospects. Our research shows that the top 50% of industries ranked by Zacks perform better than the bottom 50% by a factor greater than 2 to 1.

The industry's position in the top 50% of companies in the Zacks category is due to the prospects for positive results for all constituent companies. In view of the revisions to the comprehensive income estimates, it appears that analysts have gained greater confidence in the earnings growth potential of this group in recent months. Clearly, industry profit estimates for the current year have increased by 3.5% since September 2018.

Before presenting you with some defense and aerospace equipment titles that you might want to add to your portfolio, let's look at recent stock market performance and industry valuation.

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The defense and aerospace sector underperformed the Zacks S & P 500 composite as well as its own sector over the past year. Shares in this industry collectively lost 7.1%, while the aerospace sector lost 7%. The Zacks S & P 500 composite dropped by 4.8% in the same period of time.

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Based on the EV / 12-month sales ratio, used to value capital-intensive equities such as aerospace-defense, the sector is currently trading at 1.49, compared with 2.73 for the S & P 500 and 1.34 for the sector.

Over the last five years, the sector has reached 1.83X, the median of 1.67X, as shown in the charts below.

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The story continues

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Macroeconomic statistics such as a drop in the country's unemployment rate and improved GDP growth reinforce growth prospects. Naturally, these have paved the way for increased performance of the defense and aerospace sector, since a strong economy can better support defense financing. On the commercial side, the demand for new jets is expected to increase as a large fleet of older aircraft is expected to retire in the coming years.

However, the shortage of skilled labor in the US aerospace defense industry remains a concern. Nevertheless, to remedy this problem, in July 2018, a handful of major US aerospace and defense contractors, such as Boeing, General Dynamics and Huntington Ingalls (HII), committed to improve employment prospects in this sector.

Given the favorable position of the sector and its earnings outlook, investors can bet on a few stocks in this space with good earnings prospects.

We present you with four Tier 2 (strong buy) or 2 (buy) aerospace defense values ​​that investors may want to add to their portfolios. You can see the full list of Tier 1 stocks from today's Zacks here.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Lockheed Martin Corp. (LMT): For this Bethesda, Maryland based company, the Zacks consensus estimate for 2019 indicates an improvement of one year on the other by 11.3%. He had an average positive surprise of 13.92% in the last four quarters. He sports a Rank # 1 Zacks. "Data-reactid =" 92 ">Lockheed Martin Corp. (LMT): For this Bethesda, Maryland based company, the Zacks consensus estimate for 2019 indicates an improvement of one year on the other by 11.3%. He had an average positive surprise of 13.92% in the last four quarters. He sports a Rank # 1 Zacks.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Northrop Grumman Corp. (NOC): For this company based in Falls Church, Virginia, the Zacks consensus estimate for 2019 EPS has increased 13% over the past 90 days. He had an average positive surprise of 17.87% over the last four quarters. He is wearing a Zacks Rank # 2. "Data-reactid =" 93 ">Northrop Grumman Corp. (NOC): For this company based in Falls Church, Virginia, the Zacks consensus estimate for 2019 EPS has increased 13% over the past 90 days. He had an average positive surprise of 17.87% over the last four quarters. He is wearing a Zacks Rank # 2.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Boeing Co. (BA): For this Chicago – based company, IL, the Zacks consensus estimate for 2019 indicates an improvement of one year on the other by 21.1%. He had an average positive surprise of 28.01% over the last four quarters. He holds a rank of Zacks No. 2. "data-reactid =" 94 ">The Boeing Co. (BA): For this Chicago – based company, IL, the Zacks consensus estimate for 2019 indicates an improvement of one year on the other by 21.1%. He had an average positive surprise of 28.01% over the last four quarters. He holds a Zacks Rank # 2.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Engility Holdings (EGL): For this Chantilly, Virginia – based company, Zacks 'consensus estimate for the current year' s earnings per share indicates a year – on – year improvement over the year. another 5.1%. It generated a positive average surprise of 19.9% ​​in the last four quarters. He is wearing a Rank # 2 Zacks. "Data-reactid =" 95 ">Engility Holdings (EGL): For this Chantilly, Virginia – based company, Zacks 'consensus estimate for the current year' s earnings per share indicates a year – on – year improvement over the year. another 5.1%. It generated a positive average surprise of 19.9% ​​in the last four quarters. He is wearing a Zacks Rank # 2.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "More news on the stock: it's bigger than the iPhone!

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<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "
Do you want to know the latest Zacks Investment Research recommendations? Today, you can download 7 best actions for the next 30 days. Click to get this free report

Northrop Grumman Corporation (NOC): Free Stock Analysis Report

Lockheed Martin Corporation (LMT): Free Stock Analysis Report

Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report

Engility Holdings, Inc. (EGL): Free Stock Analysis Report

The Boeing Company (BA): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research"data-reactid =" 97 ">
Do you want to know the latest Zacks Investment Research recommendations? Today, you can download 7 best actions for the next 30 days. Click to get this free report

Northrop Grumman Corporation (NOC): Free Stock Analysis Report

Lockheed Martin Corporation (LMT): Free Stock Analysis Report

Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report

Engility Holdings, Inc. (EGL): Free Stock Analysis Report

The Boeing Company (BA): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research