American defense companies started the week with a growth in quotations amid the US strikes on Iran's nuclear facilities and Tehran's subsequent attack on the Pentagon's military bases in the region. However, analysts warn that this surge may not develop into sustainable dynamics: short-term conflicts rarely change the long-term prospects of the sector.

Details

U.S. defense stocks jumped on Monday, June 23 -  investors reacted to strikes on Iran's nuclear facilities, writes Barron's and then to Tehran's response, which attacked U.S. military bases in Qatar and Iraq. As the market concluded that it was a coordinated move that would not lead to a major escalation, arms makers' quotes trimmed some of the gains. 

- Shares of Lockheed Martin, whose fighter jets were involved in the U.S. operation on the night of June 22, were up 2.5% at the peak, but had squandered most of the gains by the close of the trading session. 

- Northrop Grumman securities added over 2% in the moment and remained only in a small plus at the end of the day. B-2 bombers of this manufacturer were also involved in the attack on Iran's nuclear facilities. They dropped 14 GBU-57 anti-bunker bombs, the first operational use of such weapons ordered from Boeing in 2011, Barron's wrote. Its shares rose 1.3 percent.

- Quotes of one of the largest players in the sector RTX - the manufacturer of cruise missiles Tomahawk, which the U.S. Army launched at Iranian facilities - rose weaker than the others, within 0.2%, and by the close and fell by 0.6%.

- L3Harris Technologies shares rose 0.5% and General Dynamics rose 1.3%. 

Will military stocks continue to rise?

Short-term conflicts do not always change the direction of military spending, Barron's notes.

«We don't know if the U.S. strikes will affect political support for increasing [Defense Department] budgets. We do not yet have a clear understanding of the specific areas that may receive more funding,» wrote Capital Alpha Partners analyst Byron Callan on Sunday, even before the Iranian retaliatory strike.

Kevin Simpson of Capital Wealth Planning last week stated CNBC that shares of defense company RTX are a solid buy in light of the Iran-Israel conflict, as well as given the company's current valuation.  «The [price-to-earnings forecast multiple] of 17 is a good value to growth potential. In addition, the company pays a 2% dividend, so you get income while you wait,» Simpson wrote. ;

He warned that there is a risk in trading on the news: «This whole sector is getting close to all-time highs, so you should pay attention to multiples to make sure you are not chasing something overvalued.»  «But there should definitely be at least one or two names [from the sector] in a diversified portfolio,» the analyst said;

Douglas Harned of Bernstein -also even before the Pentagon s operation- talked about the driver for the industry represented by President Trump's project to build the U.S. Golden Dome missile defense system. Its cost is estimated at $175 billion.  «Even if the system doesn't materialize, we expect that individual elements of it will be built and companies will be able to capitalize on the effort,» Harned said, as quoted by CNBC. He predicts that most major defense contractors will benefit, including L3Harris Technologies, RTX, Northrop Grumman, Lockheed Martin, BAE Systems and Boeing. 

According to MarketWatch, Boeing has 68% of «buy» recommendations among analysts tracking the company's stock; RTX Corp has slightly less at 65%; and Northrop Grumman has 56%. Lockheed Martin is more cautious, with less than half of Wall Street analysts recommending buying its securities - 44%. 52% - advise keeping them in the portfolio.

This article was AI-translated and verified by a human editor

Share