Dj Ibd: Warren Buffett Pick Heico Nears A Buy Point Amid 45% Rally

Investors looking for stocks in the Aerospace - Defense Equipment sector might want to consider either Bae Systems PLC (BAESY) or Heico Corporation (HEI). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Bae Systems PLC and Heico Corporation are both sporting a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

BAESY currently has a forward P/E ratio of 19.18, while HEI has a forward P/E of 59.57. We also note that BAESY has a PEG ratio of 1.54. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. HEI currently has a PEG ratio of 3.07.

Another notable valuation metric for BAESY is its P/B ratio of 3.79. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, HEI has a P/B of 9.75.

These metrics, and several others, help BAESY earn a Value grade of B, while HEI has been given a Value grade of D.

Both BAESY and HEI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BAESY is the superior value option right now.

Zacks Investment Research

TransDigm Group Incorporated TDG is slated to report fourth-quarter fiscal 2024 results on Nov. 7, before market open.

See the Zacks Earnings Calendar to stay ahead of market-making news.

TransDigm delivered a trailing four-quarter average earnings surprise of 8.46%. The improving growth trends in commercial air travel and strong defense sales are likely to have bolstered the quarterly performance.

TDG’s Power & Control Segment to Remain Robust

Strong sales from the commercial aftermarket, backed by steadily improving commercial air travel demand and the resulting higher flight hours and utilization of aircraft, are likely to have contributed favorably to revenues from the Power & Control segment. Improved sales from the commercial original equipment manufacturer (OEM) businesses, driven by continued recovery in both narrow-body and wide-body aircraft, are also expected to have bolstered this segment’s top line.

Transdigm Group Incorporated Price and EPS Surprise

Transdigm Group Incorporated price-eps-surprise | Transdigm Group Incorporated Quote

Also, an improving U.S. government defense spending trend is likely to have added an impetus to the defense part of the Power & Control segment in the fiscal fourth quarter.

The Zacks Consensus Estimate for the Power & Control segment’s fiscal fourth-quarter revenues is pegged at $1.08 billion, indicating a 17.9% improvement from the year-ago quarter’s reported figure.

TDG’s Airframe Segment Likely to Report Revenue Growth

Sales from the Airframe segment are likely to have been boosted by the strong air travel growth as well as rising demand for this unit’s defense products, backed by solid government funding support.

The Zacks Consensus Estimate for the segment’s fiscal fourth-quarter revenues is pegged at $1.02 billion, indicating 15% growth from the prior-year quarter’s reported actuals.

Q4 Estimates for TDG

Strong sales expectations from both of its primary segments, which constitute approximately 97% of TDG’s total revenues, might have bolstered its overall quarterly revenue performance. The Zacks Consensus Estimate for sales is pegged at $2.16 billion, indicating an improvement of 16.8% from the prior-year recorded number.

A strong top line is likely to have boosted TDG’s overall margin performance, thereby contributing favorably to its quarterly bottom line. Also, higher interest income might have contributed favorably to TDG’s overall earnings performance in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $9.25 per share, indicating an increase of 15.2% from the year-ago reported figure

What the Zacks Model Unveils for TDG

Our proven model does not conclusively predict an earnings beat for TransDigm this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here, as you will see below.

TDG’s Earnings ESP: TDG has an Earnings ESP of -2.92%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

TDG’s Zacks Rank: Currently, TDG carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here we have mentioned the following two players from the same industry that also have the right combination of elements to beat earnings in the upcoming releases.

Triumph Group, Inc. TGI is slated to report its second-quarter fiscal 2025 results on Nov. 12, before market open. It has an Earnings ESP of +9.09% and a Zacks Rank of 3 at present.

The Zacks Consensus Estimate for TGI’s fiscal second-quarter earnings stands at 6 cents per share, which calls for a 500% improvement from the second-quarter fiscal 2024 reported number. The Zacks Consensus Estimate for fiscal second-quarter sales is pegged at $287.3 million.

Heico Corp. HEI is expected to report its fourth-quarter fiscal 2024 results soon. It has an Earnings ESP of +1.32% and a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for HEI’s fiscal fourth-quarter earnings stands at 99 cents per share, which calls for a 17.9% improvement from the fourth-quarter fiscal 2023 reported number. The Zacks Consensus Estimate for fiscal fourth-quarter sales is pegged at $1.05 billion.

Recent Defense Releases

Lockheed Martin Corporation LMT reported third-quarter 2024 adjusted earnings of $6.84 per share, which beat the Zacks Consensus Estimate of $6.47 by 5.7%. The bottom line also rose 1% from the year-ago quarter's recorded figure of $6.77.

Net sales were $17.10 billion, which missed the Zacks Consensus Estimate of $17.28 billion by 1%. The top line, however, increased 1.3% from $16.88 billion reported in the year-ago quarter.

Zacks Investment Research

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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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

Archer Aviation Inc. ACHR is slated to report third-quarter 2024 results on Nov. 7, after market close. The company delivered an earnings surprise of 14.29% in the last reported quarter.

See the Zacks Earnings Calendar to stay ahead of market-making news.

The company delivered an average earnings surprise of 7.73% in the trailing four quarters.

Let’s discuss the factors that are likely to affect the upcoming quarterly results.

Factors to Note Ahead of ACHR’s Results

In August 2024, Archer Aviation signed an agreement with Future Flight Global (“FFG”) to deliver up to 116 Midnight electric vertical take-off and landing (eVTOL) aircraft, valued at approximately $580 million. This agreement boosted the company’s order book to $6 billion, which is likely to reflect in its third-quarter results.

Archer Aviation Inc. Price and EPS Surprise

Archer Aviation Inc. price-eps-surprise | Archer Aviation Inc. Quote

In the same month, Archer Aviation delivered its first Midnight aircraft to the U.S. Air Force as part of the AFWERX Agility Prime contract, valued at up to $142 million. This is likely to have contributed favorably to ACHR’s third-quarter revenues.

On the financial front, ACHR bolstered its liquidity by securing $220 million worth of capital raised since the end of the second quarter of 2024. This funding, combined with the $360 million of cash on hand the company had at the end of the second-quarter, is likely to have bolstered its cash balance, which is expected to have reflected in its third-quarter balance sheet.

With the company progressing efficiently toward its target to commercialize the Midnight aircraft in 2025, it is likely to have incurred notable engineering development expenses for the program’s development. This, in turn, is likely to have increased Archer Aviation’s operating expenses, thereby weighing on its quarterly earnings performance.

However, the technological advancement that ACHR has achieved over the past few quarters while developing the Midnight jet is likely to have provided it with operational efficiency, thereby aiding its quarterly bottom line.

Q3 Expectations for ACHR

The Zacks Consensus Estimate for Archer Aviation’s third-quarter earnings is pegged at a loss of 24 cents per share, which indicates an improvement from the year-ago quarter’s loss of 29 cents per share.

The Zacks Consensus Estimate for sales is pegged at $1.1 million.

What the Zacks Model Unveils for ACHR

Our proven model does not conclusively predict an earnings beat for ACHR this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here, as you will see below.

Earnings ESP: ACHR has an Earnings ESP of -2.13%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Zacks Rank: Archer Aviation currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Investors can consider the following players from the same sector, which have the right combination of elements to post an earnings beat in their quarterly results.

Heico Corporation HEI is scheduled to report its fourth-quarter fiscal 2024 results soon. It has an Earnings ESP of +1.32% and a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for sales is pegged at $1.05 billion, which indicates a 11.8% improvement from the year-ago quarter’s figure. The consensus estimate for earnings is pinned at 99 cents per share, which indicates year-over-year growth of 17.9%.

Triumph Group TGI is slated to release its third-quarter results on Nov. 12. It has an Earnings ESP of +9.09% and a Zacks Rank of 3 at present.

The Zacks Consensus Estimate for sales is pegged at $287.3 million. The consensus estimate for earnings is pegged at 6 cents per share, which indicates year-over-year growth of 500%.

A Recent Defense Release

Hexcel Corporation HXL reported third-quarter adjusted earnings of 47 cents per share, which improved 23.7% from the year-ago quarter’s figure of 38 cents. The bottom line also surpassed the Zacks Consensus Estimate by 2.2%.

Net sales totaled $456.5 million, which beat the consensus estimate of $456.2 million by 0.1%. The top line also witnessed an improvement of 8.8% from the year-ago quarter’s figure of $419.5 million.

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

Looking for broad exposure to the Small Cap Growth segment of the US equity market? You should consider the Janus Henderson Small/Mid Cap Growth Alpha ETF (JSMD), a passively managed exchange traded fund launched on 02/23/2016.

The fund is sponsored by Janus Henderson. It has amassed assets over $386.30 million, making it one of the average sized ETFs attempting to match the Small Cap Growth segment of the US equity market.

Why Small Cap Growth

There's a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even higher risk.

Qualities of growth stocks include faster growth rates compared to the broader market, as well as higher valuations and higher than average sales and earnings growth rates. Also, growth stocks are a type of equity that carries more risk compared to others. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don't perform as strongly in almost all other financial environments.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.30%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.36%.

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.

This ETF has heaviest allocation to the Industrials sector--about 26.70% of the portfolio. Healthcare and Information Technology round out the top three.

Looking at individual holdings, Applovin Corp. Class A (APP) accounts for about 4.39% of total assets, followed by Heico Corporation (HEI) and Incyte Corporation (INCY).

The top 10 holdings account for about 24.75% of total assets under management.

Performance and Risk

JSMD seeks to match the performance of the Janus Small/Mid Cap Growth Alpha Index before fees and expenses. The Janus Henderson Small/Mid Cap Growth Alpha Index selects small- and medium-sized capitalization stocks that are poised for smart growth by evaluating each company performance in three critical areas: growth, profitability, and capital efficiency.

The ETF has added roughly 10.44% so far this year and was up about 26.29% in the last one year (as of 11/05/2024). In the past 52-week period, it has traded between $55.58 and $73.80.

The ETF has a beta of 1.12 and standard deviation of 23.42% for the trailing three-year period. With about 258 holdings, it effectively diversifies company-specific risk.

Alternatives

Janus Henderson Small/Mid Cap Growth Alpha ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, JSMD is a reasonable option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $12.09 billion in assets, Vanguard Small-Cap Growth ETF has $18.21 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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.

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