7 Top Defense Stock Picks Geopolitics Continues to Take Center Stage

Core Insights - The defense sector is expected to gain importance due to worsening geopolitical circumstances and significant election cycles, prompting investors to consider top defense stocks [1][2] Group 1: Lockheed Martin (LMT) - Lockheed Martin reported Q2 earnings per share (EPS) of $6.85, surpassing the expected $6.46, resulting in a 6% earnings surprise [3] - For fiscal 2024, analysts project sales to reach $71.08 billion, a 5.2% increase from the previous year, with a high estimate of $72.13 billion [4] - The stock trades at a reasonable valuation of 1.8x sales, compared to an average of 1.69x between Q2 2023 and Q2 2024 [20] Group 2: Northrop Grumman (NOC) - Northrop Grumman achieved Q2 EPS of $6.36, exceeding the consensus target of $5.93, leading to a 7.2% earnings surprise [22] - Analysts forecast fiscal 2024 sales to rise to $41.31 billion, up 5.1% from $39.29 billion in the prior year [23] - The stock currently trades at 1.76x trailing-year sales, slightly below the average of 1.81x over the past year [6] Group 3: RTX (Raytheon Technologies) - RTX reported Q2 EPS of $1.41, beating the anticipated $1.30, resulting in an 8.61% earnings surprise [8] - Sales are expected to increase to $79.41 billion, a 6.9% rise from last year's $74.31 billion [9] - The stock trades at 2.16x sales, higher than the previous year's 1.89x but still within a reasonable range [24] Group 4: General Dynamics (GD) - General Dynamics posted Q2 EPS of $3.26, slightly missing the target of $3.31, but has shown strong performance in Q3 2024 [26] - Analysts predict fiscal 2024 revenue to reach $48.07 billion, a 13.7% increase from the prior year [42] - The stock trades at 1.77x sales, consistent with other defense companies [11] Group 5: L3Harris Technologies (LHX) - L3Harris reported Q2 EPS of $3.24, beating the consensus of $3.18, with an average EPS of $3.14 over the past four quarters [28] - For fiscal 2024, sales are anticipated to rise to $21.23 billion, a 9.3% increase from the previous year [33] - The stock trades at 2.06x sales, which is reasonable compared to the past year's average of 2.1x [12] Group 6: Textron (TXT) - Textron achieved Q2 EPS of $1.54, exceeding the consensus of $1.47, resulting in a 4.7% earnings surprise [34] - The stock appears undervalued, trading at 1.28x sales, compared to an average of 1.2x over the past year [29] - Analysts expect sales to reach $14.5 billion in the current year, a 6% increase from $13.7 billion last year [39] Group 7: Kratos Defense (KTOS) - Kratos is noted for its focus on unmanned systems, which are increasingly critical in defense [30] - The company posted Q1 EPS of $0.11, significantly above the target of $0.05, with an average earnings surprise of around 70% over the past year [15] - The stock trades at 2.8x revenue, higher than the previous year's average of 2.15x [35]