In our recent Aerospace and Defense Report our Roundtable Forum with Alex P. Hamilton of Jesup & Lamont. and Richard Tortoriello of Standard & Poor’s U.S. Equity Research focused on the defense budget and how cuts in spending would impact the sector:
Mr. Hamilton: My coverage of defense, by design, is to avoid some of the platform names. Those would include Lockheed Martin, Northrop, General Dynamics; those are the names that are historically associated with making platforms. That being said, I think what happens is when the defense budgets start getting cut, if I’m the defense contractor on several of these programs that are being cut and I’ve come off of record years of cash flow, I’m going to sit there and acquire some of the smaller names.
Mr. Tortoriello: I cover the large defense contractors. I’m neutral on them, on Lockheed, Northrop, Raytheon (RTN), and General Dynamics, but the neutral opinion is primarily just a reflection of the low valuations currently as the stocks have already come down in anticipation of weak defense spending ahead. That being said, I wouldn’t recommend getting into these names at this point. I think we’re in a long-term environment of constraint in defense spending. I do agree that there will be spending in other areas – cyber security is certainly one of them – but I don’t think that that spending will be enough to offset the cuts that I believe we’re going to see over the next several years to the defense budget.
Lockheed Martin (LMT), Raytheon (RTN) and Northrop Grumman (NOC) Attract Investors with Yield Despite Defense Budget Uncertainty
November 09, 2012
Boeing (BA) and Embraer SA (ERJ) Continue Producing Aircraft Despite Fears of Fiscal Cliff and U.S. Defense Cuts
November 27, 2012
Defense Opportunities Resistant to Military Budget Cuts
November 21, 2011
Macro Headwinds, Funding Cuts Put Pressure On Defense
May 31, 2012
A “Buy” on Defense Stock Raytheon Company (NYSE:RTN)
June 27, 2016
