Rising geopolitical tensions have increased defense spending and spurred the development of new defense technologies and equipment. Therefore, investors can consider holding fundamentally strong air defense stocks BAE Systems ( BAESY ), Moog ( MOG.A ), and CPI Aerostructures ( CVU ). Keep reading.
Following the Russia-Ukraine geopolitical crisis, the defense sector has seen a surge in demand and spending. Amid heightened tensions, investors may benefit from holding fundamentally strong stocks such as BAE Systems plc (BAESY), Moog Inc. (MOG.A), and CPI Aerostructures, Inc. (CVUBy the end of the month.
Tensions between the US and China The US Things have been escalating recently after the shooting down of an alleged Chinese spy balloon by As geopolitical issues prevail, countries are compelled to protect their territories from potential adversaries at any cost. We have thus seen a greater emphasis on enhancing air defense services.
The market is fueled by growing demand and increasing number of air-based threats that facilitate both acquisition of new technologies and research and development. The Air Defense Systems market is expected to reach $21.41 billion in 2027 CAGR 7.4%.
Investors’ interest in defense stocks is fueled by the iShares US Aerospace & Defense ETF (ITA10.9% return in last six months.
Given these factors, investors can benefit from fundamentally strong air defense stocks BAESY, MOG.A and CVU.
BAE Systems plc (BAESY)
Based in Farnborough, United Kingdom, BAESY provides defense, aerospace and security solutions worldwide. The company operates through five divisions: Electronic Systems, Cyber and Intelligence, Platforms and Services (US), Air and Maritime.
On March 30, 2023, Swedish electric airplane maker BAESY and Hart Aerospace announced a collaboration to define the battery system for Hart’s ES-30 regional electric airplane.
Ehtisham Siddiqui, Vice President and General Manager, Controls and Avionics Solutions at BAESY said, “Our industry-leading solution is based on decades of expertise in providing the technologies and systems needed to advance sustainable transportation. We are delighted to collaborate with Hart Aerospace on innovation. is. a battery system for its electric airplanes.”
In terms of trailing-12-month gross profit margin, BAESY’s 66.15% is 121.6% higher than the industry average of 29.85%. Its trailing-12-month leveraged FCF margin of 5.52% is 28% higher than the industry average of 4.31%. Likewise, its 17.06% trailing-12-month Return to common equity 20.4% is higher than the industry average of 14.17%.
BAESY’s revenue rose 8.9% year-on-year to £21.26 billion ($26.48 billion) for the financial year ending December 31, 2022. The company’s net cash flow from operating activities rose 16% to £2.84 billion from the prior-year period. ($3.54 billion).
BAESY’s EPS and revenue are expected to grow 13.7% and 8% year-over-year to $3.03 and $30.19 billion, respectively, for fiscal 2023. Over the past year, the stock has gained 39.6% to close the last trading session at $50.94.
BAESY’s strong fundamentals are reflected in it POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. POWR Ratings evaluates stocks by 118 different factors, each with its own weight.
within the Aviation/Protection Services industry, it is ranked #5 among 70 stocks. Additionally, it has a B grade for value and stability. We have also given BAESY grades for Growth, Momentum, Sentiment and Quality. Get all BAESY ratings here.
Moog Inc. (MOG.A)
MOG.A designs, manufactures and integrates precision motion and fluid controls and control systems for original equipment manufacturers and end users in the aerospace, defense and industrial markets worldwide. The company operates through three divisions: Aircraft Controls, Space and Defense Controls, and Industrial Systems.
In terms of trailing-12-month CAPEX/Sales, MOG.A’s 4.31% is 49.2% higher than the 2.89% industry average. Its trailing-12-month asset turnover ratio of 0.87x is 8.5% higher than the industry average of 0.80x.
In the fiscal first quarter ended Dec. 31, 2022, MOG.A’s net sales rose 5% year-over-year to $760.10 million. The company’s gross profit rose 5.6% year-on-year to $203.69 million. Additionally, its net EPS came in at $1.44.
MOG.A’s EPS for the quarter ending September 30, 2023 is expected to rise 11.5% year-over-year to $1.52. Its revenue is expected to grow 2.4% year-over-year to $789.40 million for the quarter ended March 31, 2023. Over the past nine months, the stock has gained 13% to close at $92.27 in the last trading session.
MOG.A’s POWR ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It ranks #3 in the same industry. The stock has a B grade for growth, value and stability. Click here To access MOG.A’s POWR ratings for Momentum, Sentiment and Quality.
CPI Aerostructures, Inc. (CVU)
CVU is engaged in contract manufacturing of structural aircraft parts for fixed-wing aircraft and helicopters in the commercial and defense markets. The company also offers aerosystems and supplies parts for maintenance, repair and overhaul (MRO) as well as kitting contracts.
In terms of trailing-12-month net income margin, CVU’s 11.01% is 65.8% higher than the industry average of 6.64%. Its 15.44% trailing-12-month return on total assets is 195.3% higher than the 5.23% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.46x is 81.1% higher than the industry average of 0.80x.
CVU’s gross profit rose 8.7% year-over-year to $16.30 million in the fourth quarter ended December 31, 2022. Its operating income grew 53.8% year-over-year to $4.89 million. Additionally, its net income rose 34.5% year-over-year to $9.18 million, while its EPS came in at $0.74, a 32.1% increase from the prior-year quarter.
Over the past six months, the stock has gained 56.2% to close the last trading session at $3.47.
It’s no surprise that CVU has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Additionally, it has an A grade for growth and value and a B for sentiment. It ranks first in the Air/Defence Services industry.
Click here To view CVU’s additional POWR ratings for Momentum, Stability and Quality.
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BAESY shares were trading up $0.37 (+0.72%) to $51.31 a share on Thursday morning. Year-to-date, BAESY has gained 23.60%, compared to a 7.19% gain in the benchmark S&P 500 index over the same period.
About the Author: Malaika Alphonsus
Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research. With degrees in economics and psychology, she wants to help investors make informed investment decisions.
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