3 Aerospace-Defense Stocks to Watch Amid Supply-Chain Constraints

Industry Overview - The aerospace and defense industry is experiencing strong growth due to rising global air travel and increased defense spending, with a proposed 13% increase in the U.S. defense budget [1][5] - The industry includes companies that design and manufacture a variety of heavy-built products, including commercial and military jets, helicopters, combat vehicles, and military satellites [2] - Cybersecurity players and defense contractors providing spare parts and maintenance services are also part of the industry [3] Growth Drivers - Global air passenger traffic increased by 4.6% year over year in August 2025, with a projected growth of 5.8% in 2025, benefiting aerospace and defense companies [4] - The proposed increase in the U.S. defense budget to $1.01 trillion for fiscal 2026 is expected to enhance production volumes and contract opportunities for defense-focused companies [5] Challenges - Supply-chain disruptions from the pandemic continue to hinder growth, with aircraft deliveries currently 30% below peak levels and a backlog of 17,000 units [6][7] - Smaller suppliers, particularly those linked to commercial aerospace, are disproportionately affected by these supply-chain issues [7] Market Performance - The aerospace-defense industry has outperformed the Zacks S&P 500 composite, with a 27% increase in stock prices over the past year, compared to 18.7% for the S&P 500 [12] - However, the industry is ranked in the bottom 29% of Zacks industries, indicating a negative earnings outlook [8][10] Valuation - The industry is currently trading at an EV/Sales ratio of 3.26X, lower than the S&P 500's 5.81X and the sector's 3.45X [15] Key Companies - L3Harris Technologies: Projected sales growth of 2.1% for 2025, with a long-term earnings growth rate of 13.02% [18][19] - GE Aerospace: Reported a 24% year-over-year revenue increase to $12.2 billion, with adjusted EPS up 44% [21][22] - General Dynamics: Achieved a 10.6% revenue increase to $12.91 billion, with adjusted EPS up 15.8% [24][25]