Are Aerospace Stocks Lagging Leonardo DRS, Inc. (DRS) This Year?

Invesco has unveiled a new series of thematic exchange-traded funds (ETFs) that focus on artificial intelligence, cybersecurity, and defense sectors. These funds aim to leverage emerging trends within these industries.

What Happened: The newly introduced ETFs, named Invesco Artificial Intelligence Enablers, Cybersecurity, and Defence Innovation Ucits, are based on benchmarks crafted by Kensho, a division of S&P Global Indices. Kensho utilizes natural language processing to pinpoint companies with significant involvement in each theme, categorizing them into “core” and “non-core” groups, Financial Times reported on Thursday.

As per Invesco, core companies generate a substantial portion of their revenue from products and services aligned with these themes, while non-core companies provide essential inputs without focusing on end products. The AI enablers strategy targets firms advancing AI technology and infrastructure, whereas the cybersecurity ETF invests in companies protecting enterprises from unauthorized electronic access. The defense fund provides exposure to companies developing advanced weapons and defensive systems

Here are a few ETFs and how they fared in the past year, as per Benzinga Pro:

Artificial Intelligence

• iShares U.S. Technology ETF increased 45.40% over the year with holdings like Apple Inc. , Nvidia Corp. and Microsoft Corp. .
• Fidelity MSCI Information Technology Index ETF , with similar exposure, rose 43.17%.
• First Trust Dow Jones Internet Index Fund (NYSE:FTX), which gives exposure to Meta Platforms, Inc. , Amazon.com Inc. , Netflix, Inc. , increased 45.59%.

Cybersecurity

• First Trust NASDAQ Cybersecurity ETF increased 38.08%. Its holdings include Cisco Systems, Inc. , CrowdStrike Holdings, Inc. and Broadcom Inc. .
• Amplify Cybersecurity ETF rose 39.57%. Along with Broadcom, and Cisco, the ETF’s major holdings also include Palo Alto Networks, Inc. , and General Dynamics Corporation .
• iShares Cybersecurity & Tech ETF with exposure to companies such as SentinelOne, Inc. Class A , and Fortinet, Inc. , rose 33.95%.

Defense

• iShares US Aerospace & Defense ETF with exposure to companies such as General Electric and RTX Corp. increased 33.86%.
• Invesco Aerospace & Defense ETF with exposure to companies such as Boeing Co. and Lockheed Martin Corp increased by 43.05%.
• SPDR S&P Aerospace & Defense ETF was up by 34.86%. It gives exposure to Axon Enterprise, Inc. (NASDAQ:AXN), L3Harris Technologies, Inc. .

See Also: Bitcoin, Ethereum, Dogecoin Slingshot To The Moon After Trump Victory But ‘Sharp’ Correction Might Be In Store: Analyst Views BTC Between $80-90K By End Of Year

Why It Matters: The launch of these ETFs by Invesco comes at a time when thematic investing is gaining traction among investors looking to capitalize on specific industry trends. The focus on artificial intelligence, cybersecurity, and defense aligns with growing global interest in these areas, driven by technological advancements and increasing security concerns.

Read Next:

• Cathie Wood’s Latest Shake-up: Dumps Palantir And Jack Dorsey’s Block Along With Tesla, Buys Amazon And Meta

Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

Image via Invesco

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

For Immediate Release

Chicago, IL – November 6, 2024 – Today, Zacks Equity Research discusses BAE Systems Plc BAESY, Heico Corp. HEI, Curtiss-Wright Corp. CW and Leonardo DRS DRS.

Industry: Defense Equipment

Link: https://www.zacks.com/commentary/2364015/4-defense-equipment-stocks-to-buy-amid-supply-chain-blues

Valuable mergers and acquisitions are projected to improve economies of scale for the Zacks Aerospace-Defense Equipment industry stocks, in addition to expanding and diversifying their product portfolio. However, persistent supply-chain issues plaguing commercial aerospace may dampen demand for aircraft parts, negatively impacting the bottom line and cash flow performance of the industry players.

Nevertheless, impressive projections for global air passenger traffic bolster the growth prospects of the concerned stocks. Some key players from this industry that investors may add to their portfolio are BAE Systems Plc, Heico Corp., Curtiss-Wright Corp. and Leonardo DRS.

About the Industry

The Zacks Aerospace-Defense Equipment industry comprises firms that manufacture various vital components for the aerospace-defense space, ranging from aerostructures, space shuttles, propulsion systems, aircraft engines, defense electronics, missile and radar systems to flight test equipment, structural adhesives, instrumentation and control systems, communication products and many more. Some of these companies also offer integrated simulation and training services to the U.S. defense force. While most of the revenues are generated from the production of the aforementioned accompaniments, the industry players also generate revenues by providing notable aftermarket support and services like maintenance, repair and overhaul activities to aerospace and defense players.

3 Trends Shaping the Future of the Aerospace-Defense Equipment Industry

New M&As Instill Hope: Rising competition has historically prompted industry majors to expand their product lines through valuable mergers and acquisitions (M&As). In October 2024, HEICO Corporation announced that its Electronic Technologies Group acquired approximately 88% of Mid Continent Controls, Inc. ("MC2"). MC2 is a niche designer and manufacturer specializing in proprietary in-cabin power and entertainment components and subsystems for business jets, with its core products including power outlets, power distribution modules, cabin management systems, multimedia connectivity ports, seat controls and switch panels.

In June 2024, Curtiss-Wright Corporation announced that it has signed an agreement to acquire the stock of Ultra Energy, a subsidiary of Ultra Electronics, for $200 million in cash. Ultra Energy is a designer and manufacturer of reactor protection systems, neutron monitoring systems, radiation monitoring systems, and temperature and pressure sensors. The acquisition is expected to be closed in the fourth quarter of 2024. Such consolidations should improve economies of scale for the industry as a whole, with the players having access to diversified business models. This, in turn, should bolster their revenue growth.

Impressive Air Traffic View Boosts Prospects: World air travel data has been on a steady growth trajectory over the past few months, driven by pent-up passenger demand. Per a report published by the International Air Transport Association ("IATA") in June 2024, the number of global air passengers is expected to witness a solid 10.4% year-over-year improvement in 2024, whereas revenue passenger kilometers (RPKs) growth is estimated to be 11.6%. Consequently, airline industry revenues are expected to reach a historic high of $996 billion this year, reflecting an annual 9.7% improvement. Such projections bode well for aerospace-defense equipment industry stocks, especially those engaged in commercial aviation.

Supply-Chain Disruption Poses Risk: The COVID-19-pandemic-driven supply-chain issues continue to affect global trades and businesses. Airlines have been directly affected by unforeseen maintenance issues on some aircraft/engine types, as well as delays in the delivery of aircraft parts and aircraft, thereby limiting capacity expansion and fleet renewal.

To this end, IATA announced in its June 2024 outlook that the number of aircraft deliveries scheduled for 2024 dropped to 1,583 (as per IATA's June 2024 report) from 1,777 reported six months earlier, indicating 11% less capacity added, with persisting supply-chain issues playing the role of a primary growth inhibitor. Fewer jet deliveries imply lower demand for aircraft parts. This, in turn, may cause Original Equipment Manufacturers to scale down their production volume, resulting in lower earnings and cash flows for the aerospace and defense equipment industry in the near term.

Zacks Industry Rank Reflects Dim Outlook

The Zacks Aerospace-Defense Equipment industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #183, which places it in the bottom 27% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry's position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group's earnings growth potential over the past few months. The industry's bottom-line estimate for the current fiscal year has moved down 12.7% to $2.41 since Aug. 31.

Before we present a few aerospace-defense equipment stocks that you may want to add to your portfolio, let's take a look at the industry's recent stock market performance and valuation picture.

Industry Beats S&P 500 & Sector

The Aerospace-Defense Equipment industry has outperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively surged 38.5% in a year, while the Aerospace sector has risen 9.7%. The Zacks S&P 500 composite has surged 31.5% in the same time frame.

Industry's Current Valuation

On the basis of trailing 12-month EV/Sales, which is used for valuing capital-intensive stocks like aerospace-defense equipment, the industry is currently trading at 6.86X compared with the S&P 500's 5.08X and the sector's 2.49X.

Over the past five years, the industry has traded as high as7.02X, as low as 2.22X and at the median of 5.69X.

4 Aerospace-Defense Equipment Stocks to Buy

Leonardo DRS: Based in Arlington, VA, Leonardo DRS develops and manufactures advanced defense products. The company's broad technology portfolio focuses on advanced sensing, network computing, force protection and electric power and propulsion as well as a range of key defense priorities. On Oct. 31, 2024, the company announced that it was awarded a contract from NAVSEA to produce ship-based air and surface target detection AN/SPQ-9B radars. The contract includes options, which, if exercised over five years, would bring the cumulative value to more than $235 million.

The Zacks Consensus Estimate for DRS' 2024 sales indicates a 12.9% improvement from the previous year's registered number. The stock boasts a long-term earnings growth rate of 18%. It currently holds a Zacks Rank #1 (Strong Buy).

Curtiss-Wright: Based in Davidson, NC, Curtiss-Wright provides highly engineered products and services for high-performance platforms and critical applications in key areas such as commercial aerospace and defense electronics, reactor coolant pumps for next-generation nuclear reactors, as well as advanced surface treatment technologies. On Oct. 30, 2024, the company announced its third-quarter 2024 results. Its adjusted earnings per share (EPS) of $2.97 improved 16.9% from the year-ago level of $2.54. Its net sales of $798.9 million increased 10.3% year over year.

The Zacks Consensus Estimate for CW's 2024 sales indicates a 7.1% improvement from the previous year's registered number. The Zacks Consensus Estimate for 2024 earnings indicates a 13.7% improvement from the previous year's registered number. It currently holds a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Heico Corp.: Based in Hollywood, FL, Heico is one of the world's leading manufacturers of FAA-approved jet engine and aircraft component replacement parts. On Nov. 4, 2024, the company announced that its Paris, France-based Exxelia subsidiary acquired 70% of SVM Private Limited ("SVM"). Exxelia is part of HEICO's Electronic Technologies Group. SVM is a leading designer and manufacturer of high-performance electronic passive components and sub-systems, including critical magnetic components and busbars, specifically serving the healthcare and industrial end-markets.

The Zacks Consensus Estimate for fiscal 2024 sales implies an improvement of 31.1% from the previous year's reported figure. The stock boasts a long-term earnings growth rate of 19.4%. It currently holds a Zacks Rank #2.

BAE Systems.: Based in London, United Kingdom, BAE Systems is a global company engaged in the development, delivery and support of advanced defense and aerospace systems in the air, on land and at sea. On Oct. 29, 2024, the company announced that it will invest £220 million to upgrade its facilities in Rochester, Kent. The site, which is home to the company's UK-based Electronic Systems business, will undergo significant renovation to create a new state-of-the-art factory of more than 32,000 square meters.

The Zacks Consensus Estimate for 2024 sales implies an improvement of 37.7% from the previous year's reported figure. The stock boasts a long-term earnings growth rate of 12.4%. It currently holds a Zacks Rank #2.

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Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 6, 2024 – Stocks in this week’s article are Snap Inc. SNAP, GeneDx Holdings Corp. WGS and Leonardo DRS, Inc. DRS.

3 Stocks to Buy for Stellar Earnings Acceleration for November

November has traditionally been one of the best months for stocks. This year, it won't be any different. Interest rate cuts and a rise in consumer outlays may trounce short-term gyrations in the stock market due to the upcoming presidential election. Thus, investors should capitalize on the positive trend by investing in earnings acceleration stocks.

This is because studies have shown that most successful stocks have seen an acceleration in earnings before an uptick in the stock price. To that end, stocks like Snap Inc., GeneDx Holdings Corp. and Leonardo DRS, Inc. are exhibiting solid earnings acceleration.

What is Earnings Acceleration?

Earnings acceleration is the incremental growth in a company's earnings per share (EPS). In other words, if a company's quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be called earnings acceleration.

In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps spot stocks that haven't yet caught the attention of investors and, once secured, will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.

An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.

The above criteria narrowed the universe of around 7,735 stocks to only six. Here are the best three stocks:

Snap

Snap is a mobile camera app for sharing short videos and images known as Snaps. Snap currently has a Zacks Rank #2 (Buy). SNAP's expected earnings growth rate for the current year is 166.7%. You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

GeneDx

GeneDx is a pioneer in healthcare, using advanced exome and genome testing with rare disease data sets. GeneDx currently has a Zacks Rank #1. WGS' expected earnings growth rate for the current year is 95.4%.

Leonardo DRS

Leonardo DRS develops and manufactures defense products for the U.S. military and allies. Leonardo DRS currently has a Zacks Rank #2. DRS' expected earnings growth rate for the current year is 21.9%.

You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2363743/3-stocks-to-buy-for-stellar-earnings-acceleration-in-november

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.

Follow us on Twitter: https://www.twitter.com/zacksresearch

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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Contact: Jim Giaquinto

Company: Zacks.com

Phone: 312-265-9268

Email: pr@zacks.com

Visit: https://www.zacks.com/

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 5, 2024 – Stocks in this week’s article are Snap Inc. SNAP, GeneDx Holdings Corp. WGS and Leonardo DRS, Inc. DRS.

3 Stocks to Buy on Earnings Acceleration in November

November has traditionally been one of the best months for stocks. This year, it won't be any different. Interest rate cuts and a rise in consumer outlays may trounce short-term gyrations in the stock market due to the upcoming presidential election. Thus, investors should capitalize on the positive trend by investing in earnings acceleration stocks.

This is because studies have shown that most successful stocks have seen an acceleration in earnings before an uptick in the stock price. To that end, stocks like Snap Inc., GeneDx Holdings Corp. and Leonardo DRS, Inc. are exhibiting solid earnings acceleration.

What Is Earnings Acceleration?

Earnings acceleration is the incremental growth in a company's earnings per share (EPS). In other words, if a company's quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be called earnings acceleration.

In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps spot stocks that haven't yet caught the attention of investors and, once secured, will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.

An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.

The above criteria narrowed the universe of around 7,735 stocks to only six. Here are the best three stocks:

Snap

Snap is a mobile camera app for sharing short videos and images known as Snaps. Snap currently has a Zacks Rank #2 (Buy). SNAP's expected earnings growth rate for the current year is 166.7%. You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

GeneDx

GeneDx is a pioneer in healthcare, using advanced exome and genome testing with rare disease data sets. GeneDx currently has a Zacks Rank #1. WGS' expected earnings growth rate for the current year is 95.4%.

Leonardo DRS

Leonardo DRS develops and manufactures defense products for the U.S. military and allies. Leonardo DRS currently has a Zacks Rank #2. DRS' expected earnings growth rate for the current year is 21.9%.

You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2363743/3-stocks-to-buy-for-stellar-earnings-acceleration-in-november

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.

Follow us on Twitter: https://www.twitter.com/zacksresearch

Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Contact: Jim Giaquinto

Company: Zacks.com

Phone: 312-265-9268

Email: pr@zacks.com

Visit: https://www.zacks.com/

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

Zacks Investment Research

Valuable mergers and acquisitions are projected to improve economies of scale for the Zacks Aerospace-Defense Equipment industry stocks, in addition to expanding and diversifying their product portfolio. However, persistent supply-chain issues plaguing commercial aerospace may dampen demand for aircraft parts, negatively impacting the bottom line and cash flow performance of the industry players. Nevertheless, impressive projections for global air passenger traffic bolster the growth prospects of the concerned stocks. Some key players from this industry that investors may add to their portfolio are BAE Systems Plc BAESY, Heico Corp. HEI, Curtiss-Wright Corporation CW and Leonardo DRS DRS.

About the Industry

The Zacks Aerospace-Defense Equipment industry comprises firms that manufacture various vital components for the aerospace-defense space, ranging from aerostructures, space shuttles, propulsion systems, aircraft engines, defense electronics, missile and radar systems to flight test equipment, structural adhesives, instrumentation and control systems, communication products and many more. Some of these companies also offer integrated simulation and training services to the U.S. defense force. While most of the revenues are generated from the production of the aforementioned accompaniments, the industry players also generate revenues by providing notable aftermarket support and services like maintenance, repair and overhaul activities to aerospace and defense players.

3 Trends Shaping the Future of the Aerospace-Defense Equipment Industry

New M&As Instill Hope: Rising competition has historically prompted industry majors to expand their product lines through valuable mergers and acquisitions (M&As). In October 2024, HEICO Corporation announced that its Electronic Technologies Group acquired approximately 88% of Mid Continent Controls, Inc. ("MC2"). MC2 is a niche designer and manufacturer specializing in proprietary in-cabin power and entertainment components and subsystems for business jets, with its core products including power outlets, power distribution modules, cabin management systems, multimedia connectivity ports, seat controls and switch panels.

In June 2024, Curtiss-Wright Corporation announced that it has signed an agreement to acquire the stock of Ultra Energy, a subsidiary of Ultra Electronics, for $200 million in cash. Ultra Energy is a designer and manufacturer of reactor protection systems, neutron monitoring systems, radiation monitoring systems, and temperature and pressure sensors. The acquisition is expected to be closed in the fourth quarter of 2024. Such consolidations should improve economies of scale for the industry as a whole, with the players having access to diversified business models. This, in turn, should bolster their revenue growth.

Impressive Air Traffic View Boosts Prospects: World air travel data has been on a steady growth trajectory over the past few months, driven by pent-up passenger demand. Per a report published by the International Air Transport Association (“IATA”) in June 2024, the number of global air passengers is expected to witness a solid 10.4% year-over-year improvement in 2024, whereas revenue passenger kilometers (RPKs) growth is estimated to be 11.6%. Consequently, airline industry revenues are expected to reach a historic high of $996 billion this year, reflecting an annual 9.7% improvement. Such projections bode well for aerospace-defense equipment industry stocks, especially those engaged in commercial aviation.

Supply-Chain Disruption Poses Risk: The COVID-19-pandemic-driven supply-chain issues continue to affect global trades and businesses. Airlines have been directly affected by unforeseen maintenance issues on some aircraft/engine types, as well as delays in the delivery of aircraft parts and aircraft, thereby limiting capacity expansion and fleet renewal. To this end, IATA announced in its June 2024 outlook that the number of aircraft deliveries scheduled for 2024 dropped to 1,583 (as per IATA’s June 2024 report) from 1,777 reported six months earlier, indicating 11% less capacity added, with persisting supply-chain issues playing the role of a primary growth inhibitor. Fewer jet deliveries imply lower demand for aircraft parts. This, in turn, may cause Original Equipment Manufacturers to scale down their production volume, resulting in lower earnings and cash flows for the aerospace and defense equipment industry in the near term.

Zacks Industry Rank Reflects Dim Outlook

The Zacks Aerospace-Defense Equipment industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #183, which places it in the bottom 27% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved down 12.7% to $2.41 since Aug. 31.

Before we present a few aerospace-defense equipment stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Beats S&P 500 & Sector

The Aerospace-Defense Equipment industry has outperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively surged 38.5% in a year, while the Aerospace sector has risen 9.7%. The Zacks S&P 500 composite has surged 31.5% in the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of trailing 12-month EV/Sales, which is used for valuing capital-intensive stocks like aerospace-defense equipment, the industry is currently trading at 6.86X compared with the S&P 500’s 5.08X and the sector’s 2.49X.

Over the past five years, the industry has traded as high as7.02X, as low as 2.22X and at the median of 5.69X, as the charts show below.

EV-Sales Ratio TTM

4 Aerospace-Defense Equipment Stocks to Buy

Leonardo DRS: Based in Arlington, VA, Leonardo DRS develops and manufactures advanced defense products. The company's broad technology portfolio focuses on advanced sensing, network computing, force protection and electric power and propulsion as well as a range of key defense priorities. On Oct. 31, 2024, the company announced that it was awarded a contract from NAVSEA to produce ship-based air and surface target detection AN/SPQ-9B radars. The contract includes options, which, if exercised over five years, would bring the cumulative value to more than $235 million.

The Zacks Consensus Estimate for DRS’ 2024 sales indicates a 12.9% improvement from the previous year’s registered number. The stock boasts a long-term earnings growth rate of 18%. It currently holds a Zacks Rank #1 (Strong Buy).

Price & Consensus: DRS

Curtiss-Wright: Based in Davidson, NC, Curtiss-Wright provides highly engineered products and services for high-performance platforms and critical applications in key areas such as commercial aerospace and defense electronics, reactor coolant pumps for next-generation nuclear reactors, as well as advanced surface treatment technologies. On Oct. 30, 2024, the company announced its third-quarter 2024 results. Its adjusted earnings per share (EPS) of $2.97 improved 16.9% from the year-ago level of $2.54. Its net sales of $798.9 million increased 10.3% year over year.

The Zacks Consensus Estimate for CW’s 2024 sales indicates a 7.1% improvement from the previous year’s registered number. The Zacks Consensus Estimate for 2024 earnings indicates a 13.7% improvement from the previous year’s registered number. It currently holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: CW

Heico Corp.: Based in Hollywood, FL, Heico is one of the world’s leading manufacturers of FAA-approved jet engine and aircraft component replacement parts. On Nov. 4, 2024, the company announced that its Paris, France-based Exxelia subsidiary acquired 70% of SVM Private Limited ("SVM"). Exxelia is part of HEICO's Electronic Technologies Group. SVM is a leading designer and manufacturer of high-performance electronic passive components and sub-systems, including critical magnetic components and busbars, specifically serving the healthcare and industrial end-markets.

The Zacks Consensus Estimate for fiscal 2024 sales implies an improvement of 31.1% from the previous year’s reported figure. The stock boasts a long-term earnings growth rate of 19.4%. It currently holds a Zacks Rank #2.

Price & Consensus: HEI

BAE Systems.: Based in London, United Kingdom, BAE Systems is a global company engaged in the development, delivery and support of advanced defense and aerospace systems in the air, on land and at sea. On Oct. 29, 2024, the company announced that it will invest £220 million to upgrade its facilities in Rochester, Kent. The site, which is home to the company’s UK-based Electronic Systems business, will undergo significant renovation to create a new state-of-the-art factory of more than 32,000 square meters.

The Zacks Consensus Estimate for 2024 sales implies an improvement of 37.7% from the previous year’s reported figure. The stock boasts a long-term earnings growth rate of 12.4%. It currently holds a Zacks Rank #2.

Price & Consensus: BAESY

Zacks Investment Research

A smart beta exchange traded fund, the SPDR S&P Aerospace & Defense ETF (XAR) debuted on 09/28/2011, and offers broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors, and has been able to amass over $2.74 billion, which makes it one of the largest ETFs in the Industrials ETFs. This particular fund seeks to match the performance of the S&P Aerospace & Defense Select Industry Index before fees and expenses.

The S&P Aerospace & Defense Select Industry Index represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Aerospace & Defense Index is a modified equal weight index.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for XAR are 0.35%, which makes it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 0.56%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For XAR, it has heaviest allocation in the Industrials sector --about 100% of the portfolio.

Taking into account individual holdings, Curtiss Wright Corp (CW) accounts for about 4.88% of the fund's total assets, followed by Axon Enterprise Inc (AXON) and L3harris Technologies Inc (LHX).

Its top 10 holdings account for approximately 47.15% of XAR's total assets under management.

Performance and Risk

The ETF has added about 15.05% so far this year and is up about 28.90% in the last one year (as of 11/05/2024). In the past 52-week period, it has traded between $118.95 and $163.94.

The ETF has a beta of 1.08 and standard deviation of 21.45% for the trailing three-year period, making it a medium risk choice in the space. With about 35 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Aerospace & Defense ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco Aerospace & Defense ETF (PPA) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $4.40 billion in assets, iShares U.S. Aerospace & Defense ETF has $6.07 billion. PPA has an expense ratio of 0.58% and ITA charges 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research