The budget problems surrounding the United States have had an impact on aerospace and defense stocks. The US defense budget has been a prime target for cuts, and defense stocks clearly will feel the pain of the cuts. Global defense spending also dropped by 0.5% in 2012, according to The Stockholm International Peace Research Institute, the first decrease since 1998. However, with most of the anticipated cuts priced in, let’s look at three companies to see if now might be the time to invest.
The beat-up conglomerate
Textron Inc. (NYSE:TXT) operates in the aircraft, defense, industrial, and finance businesses. The company is responsible for well known brands Cessna and Bell Helicopter.
The company’s stocks is trading far below its 52-week high, and the most recent quarterly earnings report was unimpressive. EPS slipped $0.01 and revenue came in flat versus the prior year. Interestingly enough, the poor results were not attributed to the segments fueled largely by government spending. Rather, soft demand in the business-jet market caused the drag on revenue.
Textron Inc. (NYSE:TXT) has acknowledged the issues with the business-jet market and has adjusted its strategy accordingly. The company adjusted production schedules and implemented other cost actions within the Cessna segment. Textron Inc. (NYSE:TXT) expects lower deliveries in the light category to be partially offset by growth in the midsize category.
Despite the actions being taken in the current fiscal year, the company still sees strong long-term growth in the global business-jet market. It remains committed to its new product plan, which includes the introduction of a new model and updates to four current models by 2017.
Lockheed Martin Corporation (NYSE:LMT) is the world’s largest defense contractor by revenue. The company’s stock is trading near 52-week highs, despite a warning in the most recent quarter that government budget cuts would hit the company over the next two quarters. Lockheed Martin Corporation (NYSE:LMT) updated its full-year sales forecast and stated that the cuts should have less that a 2% impact on revenue. The company also maintained its 2013 profit forecasts.
Lockheed Martin Corporation (NYSE:LMT) expects to strengthen international sales over the next few years to 20% of total sales, versus the 17% currently reported to help address decreased US government spending.
Patriot missiles and more
Raytheon Company (NYSE:RTN) provides electronics, mission systems integration, and other capabilities in support of mission services in the United States and internationally. Raytheon Company (NYSE:RTN) is one of the largest makers of military weapons and trades near its 52-week high. The company has already announced that it expects up to a 12% drop in earnings as a result of government spending cuts.