Updated on October 18th, 2024 by Bob Ciura
Investing in defense stocks has been a big win for shareholders. As of this writing, the iShares Dow Jones U.S. Aerospace & Defense ETF (ITA) generated annualized total returns of approximately 12.7% per year over the past 10 years.
With this in mind, we created a downloadable spreadsheet that focuses on defense stocks.
The list was derived from two major defense industry-focused exchange traded funds, ITA and the SPDR S&P Aerospace & Defense ETF (XAR).
You can download an Excel spreadsheet of all defense stocks (with metrics that matter such as dividend yields and price-to-earnings ratios) by clicking the link below:
Is there more room for these stocks to run going forward?
This article will look at the top 5 defense stocks according to the Sure Analysis Research Database.
We rank these 6 defense stocks by our expected 5-year expected returns, which includes a combination of current dividend yield, expected annual EPS growth, and any change in the valuation multiple.
Table of Contents
- Defense Stock #5: General Dynamics (GD)
- Defense Stock #4: Raytheon Technologies (RTX)
- Defense Stock #3: Northrop Grumman (NOC)
- Defense Stock #2: L3Harris Technologies (LHX)
- Defense Stock #1: Huntington Ingalls Industries Inc. (HII)
Defense Stock #5: General Dynamics (GD)
- Estimated Annual Returns: 2.2%
General Dynamics has increased its dividend for over 30 years in a row. As a result, it is on the exclusive Dividend Aristocrats list.
General Dynamics operates four business divisions. Aerospace produces the high-end Gulf Stream private jet. Combat Systems makes combat vehicles like the Abrams battle tank.
The company’s Aerospace segment is focused on business jets and services while the remainder of the company is defense.
Source: Investor Presentation
General Dynamics reported mixed Q2 2024 results on July 24th, 2024. Company-wide revenue rose 18% and diluted earnings per share increased 20.7% to $3.26 from $2.70 on a year-over-year basis.
Aerospace revenue rose 50.5% to $2,940M from $1,952M in the prior year.
The total backlog is $20,037M, declining after seven quarters of increases. Gulfstream’s book-to-bill ratio was 0.9X.
Click here to download our most recent Sure Analysis report on GD (preview of page 1 of 3 shown below):
Defense Stock #4: Raytheon Technologies (RTX)
- Estimated Annual Returns: 2.7%
Raytheon Technologies (RTX) was created on April 3rd, 2020, after the completion of the merger between Raytheon
(previous ticker: RTN) and United Technologies (previous ticker: UTX), following United Technologies’ spin-offs of its Carrier (CARR) and Otis (OTIS) businesses.
The combined business is one the largest aerospace and defense companies in the world with ~$79 billion in annual sales.
On May 2nd, 2024, Raytheon Technologies increased its quarterly dividend 6.3% to $0.63.
On July 25th, 2024, Raytheon Technologies announced second quarter results for the period ending June 30th, 2024. For the quarter, revenue grew 7.5% to $19.8 billion, which beat estimates by $520 million.
Source: Investor Presentation
Adjusted earnings-per-share of $1.41 compared to $1.29 in the prior year and was $0.11 better than expected.
The prior quarters had seen significant impairments from the manufacturing defect in some jet engines produced by the Pratt & Whitney segment.
That is largely behind the company now. Organic sales grew 10% for the period. For the quarter, organic revenue was higher by 19%, 10%, and 4% for the Pratt & Whitney, Collins Aerospace, and Raytheon segments, respectively.
Raytheon Technologies’ backlog at the end of the quarter was a new record $206 billion, compared to $202 billion in the first quarter of 2024, of which $129 billion was from commercial aerospace and $77 billion was from defense. The company’s Q2 book-to-bill ratio was 1.25.
Click here to download our most recent Sure Analysis report on RTX (preview of page 1 of 3 shown below):
Defense Stock #3: Northrop Grumman (NOC)
- Estimated Total Returns: 3.3%
Northrop Grumman Corporation reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors and systems for surveillance and targeting), Defense Systems (sustainment and modernization, directed energy, tactical weapons), and Space Systems (missile defense, space systems, hypersonics and space launchers).
Northrop Grumman makes the B-2 Spirit, E-2D, E-8C, RQ-4 Global Hawk, MQ-4C Triton, and MQ-8B/C Fire Scout. The company also provides content on the F-35 and F/A-18. It won the contract for the B-21 Raider. The company had revenue of over $39.3B in 2023.
Northrop Grumman reported excellent results for Q2 FY 2024 on July 25th, 2024. Company-wide revenue increased 7% and diluted earnings per share rose 19% to $6.36 from $5.34 on a year-over-year basis. Revenue for Aeronautics Systems rose 14% year-over-year due to higher volumes in restricted, Triton, and F-35 programs.
Click here to download our most recent Sure Analysis report on NOC (preview of page 1 of 3 shown below):
Defense Stock #2: L3Harris Technologies (LHX)
- Estimated Annual Returns: 4.2%
L3Harris Technologies (LHX) is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth largest defense contractor. The firm acquired Aerojet Rocketdyne in 2023.
The company now reports four business segments: Integrated Mission Systems (~42% of revenue), Communication Systems (~23% of revenue), Space and Airborne Systems (~35% of revenue), and Aerojet Rocketdyne.
The majority of L3Harris’ sales are to the US Government or to other defense contractors. The company had revenue of about $19.4B in 2023.
L3Harris reported mixed Q2 2024 results on July 25th, 2024. Revenue rose 13% on strength in Communication Systems and Aerojet Rocketdyne acquisitions.
Diluted non-GAAP EPS increased 9% to $3.24 from $2.97 on year-over-year basis on higher revenue and margins, offset by interest expense and flat revenue in SAS and IMS. Diluted GAAP earnings rose 5% to $1.92 from $1.83 in comparable periods.
Revenue for Space & Airborne Systems was flat at $1,707M from $1,715M. Growth came from Space Systems and classified Intel & Cyber, offset by Airborne Combat Systems and divestures.
Click here to download our most recent Sure Analysis report on LHX (preview of page 1 of 3 shown below):
Defense Stock #1: Huntington Ingalls Industries Inc. (HII)
- Estimated Annual Returns: 4.4%
Huntington Ingalls Industries was spun out of Northrop Grumman in a tax-free transaction on March 31, 2011. Today, the company primarily builds nuclear and non-nuclear ships for the U.S. Navy.
The company reports three business segments: Newport News Shipbuilding, Ingalls Shipbuilding, and Mission Technologies.
Newport News builds nuclear powered aircraft carriers and submarines. Ingalls builds surface combatant ships, amphibious assault ships, and Coast Guard cutters. Mission Technologies provides fleet maintenance and modernization, IT support, nuclear management and operations, and unmanned systems.
Source: Investor Presentation
The company had approximately $11.5B in revenue in 2023.
Huntington Ingalls reported solid Q2 2024 results on August 1st, 2024. Revenue rose 6.8% to a record $2.977 billion and diluted earnings per share gained 33.9% to $4.38 n a year-over-year basis.
Growth was due to higher sales, across all three segments.
Click here to download our most recent Sure Analysis report on HII (preview of page 1 of 3 shown below):
Final Thoughts
Defense stocks have been among the hottest stocks in the market in the past decade. This has caused many stocks in this sector to reach valuations well above their historical average.
Of the 5 defense stocks on the list, none currently meet the requirement for a buy rating, due to their expected returns being below our buy threshold of 10%.
While defense stocks could continue to perform well, we encourage investors to wait for a pullback in several of these defense stocks due to valuation concerns.
Additional Reading
The following databases of stocks contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~400 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.