2 Stocks Every Defense Investor Should Watch Right Now
The stock market hasn't been very friendly to investors over the past year, but there have been some pockets of relative strength. The industrial sector has actually performed quite well, eking out a modest gain since late January 2022 and staying well ahead of lagging areas like technology.
Companies in the aerospace and defense industry are especially important to the industrial sector as a whole, because they provide insight not just on consumer and business activity but also on government spending. On Tuesday morning, Lockheed Martin and General Electric released their latest financial results, and the reports gave a good picture of what's happening in the defense stock arena, as well as more broadly across the economy.
Lockheed deals with sluggish industry conditions
Shares of Lockheed Martin were down a fraction of a percent just after the market opened for trading on Tuesday morning. The defense company reported fourth-quarter financial results that capped a year of consolidation, and investors are hopeful that Lockheed can move forward more aggressively in 2023 and beyond.
Lockheed's numbers were mixed. For the fourth quarter, sales of $19 billion were up about 7% from year-ago levels. Net income eased lower to $1.9 billion, although adjusted earnings of $7.79 per share climbed about 8% year over year.
For the full year in 2022, sales of $66 billion were down $1 billion from 2021, and although adjusted net income dropped as well, 2022 adjusted earnings of $27.23 per share were actually up from 2021 due to a sizable reduction in outstanding share counts.
Various segments at Lockheed had fairly consistent performance. From a sales perspective, the biggest gains in the fourth quarter came from aeronautics, with its rotary and mission systems business also doing well, along with its space segment. The biggest gains in operating profit came from rotary and mission systems, but for the full year, aeronautics held up the best.
Looking ahead, Lockheed has plans in place to try to bolster its business, but its immediate outlook for 2023 doesn't suggest much progress in the short run. The defense contractor expects net sales of $65 billion to $66 billion, which would be roughly consistent with 2022 revenue.
Similarly, adjusted earnings of $26.60 to $26.90 per share would be down slightly from where Lockheed ended last year. That didn't necessarily send a sign of confidence to investors, but it does reflect reasonable uncertainty about the current state of the market.
General Electric expects a slower 2023
Shares of General Electric were little changed early in the trading session on Tuesday. The industrial conglomerate saw sizable gains in orders and sales, but investors weren't entirely satisfied with what they saw.
General Electric recently spun off its GE Healthcare Technologies segment into a separate publicly traded company, but its latest results still included the numbers from its healthcare business. Overall, GE's performance was solid, with revenue of $21.8 billion rising 7% year over year and adjusted earnings of $1.24 per share climbing by more than 50% from year-ago levels. General Electric reported $25.4 billion in orders, up 15% from last year's fourth quarter. For the full year in 2022, GE reported a 3% rise in sales but a much stronger rebound on its bottom line.
The GE Aerospace division, which includes commercial and defense products, saw strength in order flow and growing operating profit. A sizable portion of those gains has come from growth in the commercial airline industry, but military sales also rose.
Looking ahead, GE sees its aerospace business posting organic revenue growth in the mid- to high-teen percentages, with rising free cash flow. That will outpace much of the rest of General Electric's business, and that bodes well for those expecting good things from aerospace and defense more broadly in 2023.
* The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by De Angelis & Associates or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity.
Article initially appeared on motleyfool.com
Credit: motleyfool.com, DOD, NYSE
© De Angelis & Associates 2023. All Rights Reserved.