The rise in geopolitical tensions has led to increased defense spending, and the development of new technologies and equipment. Investors could consider holding air defense stocks such as BAE Systems (BAESY), Moog(MOG.A) and CPI Aerostructures. Continue reading.
After the Russia-Ukraine crisis, defense spending and demand have seen an increase. Investors could gain from holding strong fundamental stocks such as BAE Systems plc, Moog Inc., and CPI Aerostructures, Inc. through the end the month.
The tensions between the U.S. and China are on the rise. Things have gotten worse after the U.S. shot a Chinese spy balloon. Geopolitical concerns are dominating, and countries feel compelled to protect their territory from potential enemies at all costs. Air defense has been given a greater emphasis in recent years.
The market is driven by the surge in demand and increasing airborne threats, which facilitates both research and development and procurement. Air defense systems are expected to reach $21.41 Billion in 2027, with a 7.4% CAGR.
The iShares U.S. Aerospace & Defense (ITA) returns of 10.9% over the last six months shows the interest investors have in defense stocks.
Investors can benefit from the fundamental strength of air defense stocks BAESY. MOG.A. and CVU.
BAE Systems plc (BAESY)
BAESY is a British company based in Farnborough that provides solutions for defense, aerospace and security worldwide. The company is divided into five segments: Electronic Systems (US), Cyber & Intelligence (US), Platforms & Services, Air, and Maritime.
BAESY, a Swedish electric aircraft manufacturer, and Heart Aerospace announced a collaboration on March 30, 2023 to define the battery systems for Heart's ES-30 Regional Electric Airplane.
Ehtisham SIDDIQUI, vice president and general manager for Controls and Avionics Solutions, BAESY said: "Our industry leading solution is built on decades of experience delivering technologies and system needed to advance sustainable transportation. We are pleased to work with Heart Aerospace in developing the innovative battery system of its electric aircraft.
BAESY's gross profit margin for the 12-month trailing period is 66.15%, which is 121.6% more than the industry average of 29.85%. The 5.52% levered FCF trailing-12 month margin of BAESY is 28.6% higher than the industry average. Its 17.06% 12-month trailing Return on Common Equity (ROCE) is 20.4% more than the industry's average of 14.17%.
BAESY's revenues increased 8.9% from the prior-year period to PS21.26 ($26.48) billion for the fiscal year ending December 31, 2022. The net cash flow generated by the company's operating activities increased 16% compared to the previous-year period, reaching PS2.84 billion (about $3.54 billion).
BAESY is expected to grow its EPS (earnings per share) and revenue ($30.19 billion) by 13.7% and 8.0% respectively, over the past year. The stock closed the last trading day at $50.94, up 39.6% over the past year.
The POWR ratings reflect BAESY’s solid fundamentals. The company has a rating of A which is equivalent to a Strong Purchase in our proprietary system. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
It is ranked 5th out of 70 stocks in the Air/Defense Services Industry. It also has a B-grade for Value and Stability. Also, we have given BAESY ratings for Growth, Momentum and Sentiment. All BAESY ratings are available here.
Moog Inc. (MOG.A)
MOG.A is a global leader in designing, manufacturing, and integrating precision fluid and motion controls for OEMs and end-users in aerospace, defense and industrial markets. The company is divided into three segments: Aircraft Controls; Space and Defense Controls; and Industrial Systems.
MOG.A has a CAPEX/Sales ratio of 4.31%, which is 49.2% more than the industry average of 2.89%. The industry average is 0.80x. MOG.A's asset turnover ratio of 0.87x for the trailing-12 months is 8.5% more than that.
MOG.A’s net sales for the first quarter of fiscal 2022 that ended on December 31, 2022 increased by 5% over the previous year to $760.10 millions. The gross profit of the company increased by 5.6% over the past year to reach $203,69 million. The company's net EPS was $1.44.
MOG.A is expecting its EPS to grow 11.5% over the past year to $1.52. The company's revenue is expected to grow 2.4% over the past year to $789.40 millions for the quarter ending March 31, 2023. The stock price has risen 13% in the past nine-month period, closing the last trading day at $92.27.
MOG.A POWR Ratings reflect the positive outlook. It is rated A in our proprietary system. It is ranked third in the same sector. The stock is rated B for Growth, Stability, and Value. Click here to view the POWR ratings of MOG.A.
CPI Aerostructures, Inc. (CVU)
CVU is a contract manufacturer of structural aircraft components for fixed-wing aircrafts and helicopters on the commercial and defence markets. The company offers parts and aerosystems for MRO (maintenance, repair and overhaul) as well as kitting.
CVU's trailing-12 month net income margin of 11.01% is 65.8% greater than the industry average of 6.64%. The 15.44% Return on Total Assets for the trailing-12 months is 195.3% more than the industry average of 5.23%. Its 1.46x asset turnover ratio trailing 12-month is 81.1% greater than the industry's average of 0.80x.
CVU's gross profits increased 8.7% over the previous year to $16.30 millions for the fourth quarter ending December 31, 2022. Its income from operation increased by 53.8% over the past year to $4.89million. Its net income also increased by 34.5% to $9.18 millions, and its EPS was $0.74, which represents a 32.1% rise from the previous year's quarter.
The stock closed the last trading day at $3.47, a 56.2% gain over the previous six months.
CVU's overall rating is A. This translates into a Strong Purchase in our proprietary rating system. It also has an A for Growth, Value and Sentiment. It is ranked number one in the Air/Defense Services sector.
Click here to view the POWR ratings for CVU Momentum, Stability and Quality.
BAESY's shares traded at $51.31 on Thursday morning. This was up $0.37 (+0.72%). BAESY shares have risen 23.60% year-to-date compared to the benchmark S&P 500's 7.19% increase during the same time period.
Malaika Alphonsus is the author
Malaika's love of writing and her interest in the financial markets led to her pursuing a career as an investment researcher. She has a degree from the University of Economics and Psychology and hopes to help investors make informed decisions about their investments.