S&P sees more growth for aerospace, defense sectors

Despite their victory on Election Day, Standard & Poor’s Equity Research Services believes that the Democrats’ majority in Congress is unlikely to impact the health of the aerospace and defense industry because of a number of longer-term issues facing the industry. This and other findings are available in a semi-annual report, Aerospace & Defense: Industry Survey, published by Standard & Poor’s, a leading provider of independent investment research.

Standard & Poor’s Equity Research believes that there are a number of factors at play, which will lead to sustained, long-term growth in the aerospace and defense industry. These factors include the looming need to upgrade military equipment following extended tours in Iraq and under-investment during the late 1990s and the early part of this century, continued spending on homeland defense and anti-terrorism systems, and the absence of a well-defined plan for early U.S. troop withdrawals from Iraq.

“The results on Election Day and the removal of Donald Rumsfeld as Secretary of Defense have created a bit of uncertainty in the defense industry, but to date, the President’s goal of stability in Iraq is still in place and that shouldn’t be discounted when looking at shares of this group,” said Richard Tortoriello, Aerospace & Defense analyst, Standard & Poor’s Equity Research Services. “On the aerospace side, we expect both commercial and business jet markets to remain strong, buoyed by global economic growth, and see prospects for a return to growth in the regional jet market, as U.S. carriers' financial health improves.”

Standard & Poor’s Equity Research believes the following aerospace and defense companies are well-positioned to grow. S&P has a “Strong Buy” recommendation on L-3 Communications due to strong position in the homeland defense space and numerous long-term government contracts. In addition, the S&P has “Buy” recommendations on shares of the Boeing Company because of the growth of its commercial aerospace business coming at a time when its chief rival is struggling and its recent wins in the defense sector. Finally, S&P has a “Buy” on Lockhead Martin due to its rising cash flows, attractive valuations and the increase in international sales for its F-16 fighter planes.

To view a video clip of Standard & Poor’s equity analyst Richard Tortoriello discussing the defense industry, click here.

Standard & Poor’s Industry Surveys provide a broad and fundamental overview of each industry’s structure, its recent performance, and an analysis of trends that are expected to influence it in the future. Each Survey is organized into the following sections: Current Environment, Industry Profile/Industry Trends, How the Industry Operates, Key Industry Ratios and Statistics, How to Analyze a Company, Industry References, Comparative Company Analysis and a Glossary of terms used in that industry. Both text and data are provided, as are references to additional sources of industry information. Two surveys on each industry are published each year.

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