RBC Capital launches coverage on 5 defense stocks
By Davit Kirakosian
An RBC Capital analyst initiated a hedge on several defense stocks, with an outperform rating assigned to General Dynamics Corporation (NYSE:) with a price target of $275, L3Harris Technologies, Inc. (NYSE:) with a target course fees of $285, and Northrop Grumman Corporation (NYSE:) with a target price of $550, and the Sector Perform rating assigned to Leidos Holdings, Inc. (NYSE:) with a target price of $106, and Lockheed Martin Corporation (NYSE:) with a price target of $460.
The analyst’s top pick is L3Harris Technologies based on its key revenue-to-defense-budget outlook, an expected recovery in tactical communications sales in H2/22 (highest-margin business). high) and its potential for margin upside.
The analyst believes that defense fundamentals remain supportive and strong defense spending will warrant a positive revaluation of the sector, with the war in Ukraine expected to drive sentiment higher in the near term, while lingering China risk will provide support to long-term sentiment and funding on the rise.
RBC Capital models U.S. defense budget growth of around 3% through 2027. Analyst says International is an added advantage as funding levels increase in NATO countries, L3Harris Technologies, General Dynamics Corporation and Lockheed Martin Corporation being the best placed to benefit. greater international sales.