Raytheon Company (NYSE:RTN)
Raytheon posted $24.4 billion in sales over the past twelve months with a reported profit margin of 7.7%. After its 12% sales cut and a drop in margin to 6.8%, Raytheon would have estimated sales of $21.8 billion and cash earnings around $1.5 billion. Using a 14x multiplier, the company’s intrinsic business value is roughly $64 a share.
Lockheed Martin Corporation (NYSE:LMT)
Lockheed Martin had $47.1 billion in revenue for 2012 with a reported margin of 5.8%. After a 12% expected reduction to revenues and a drop in margin to 5.0%, the resulting sales of $42.1 billion and average cash profits of $2.3 billion would equate to a per share reasonable business value of around $101 based on a 14x multiplier.
General Dynamics Corporation (NYSE:GD)
General Dynamics had $31.5 billion in 2012 revenue with an adjusted profit margin of 6.5%. But unlike the others, this company has a significant amount of revenue from non-defense related businesses. Assuming those business revenues remain flat with a 12% cut to the defense related business, we get a total revenue estimate of $29.3 billion. A drop in margin to 6.0% results in average adjusted cash earnings of $2.0 billion and using a capitalizing multiplier of 14x, General Dynamics looks to have a fair value of near $80 per share.
The future for defense stocks may not be as grim as anticipated even with an implementation of the sequester. It might be worth keeping an eye on these stocks during the next few turbulent weeks. As major defense spending cuts loom, the increased publicity and resulting anxiety might offer a nice buying opportunity.
The article Getting Ready To Attack The Defense Stocks originally appeared on Fool.com and is written by Bob Chandler.
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