According to Vertical Research Partners, there are a lot of options for missile suppliers in the future, from hypersonic missiles to the Golden Dome missile defense shield.
Vertical Research Partners predicts additional good news for some defense firms as a result of the Pentagon’s alleged desire to strengthen America’s missile arsenal.
In light of global pressures, Pentagon chiefs want missile providers to increase or possibly quadruple production, according to a recent Wall Street Journal article. According to the article, in light of a possible future battle with China, the Pentagon is concerned about the low levels of U.S. weapons stockpiles caused by the conflict between Russia and Ukraine. For missile manufacturers, this might be yet another blessing.
According to Vertical Research Partners, the U.S. push for more missiles is in addition to the robust demand currently present throughout the world, especially from European nations seeking to boost their defense budgets. Although implementing such a large production ramp presents practical hurdles, analyst Robert Stallard noted in a note that missile providers might potentially experience 10% to 20% annual growth in the next years.
According to Stallard, defense contractor Leonardo DRS Inc. (DRS) has the highest exposure to missiles under his coverage, accounting for more than 20% of total sales. Notable missile exposure is also had by U.S.-based companies RTX Corp. (RTX), Lockheed Martin Corp. (LMT), and L3Harris Technologies Inc. (LHX), which generate over 10% of their respective revenues.
He has a hold recommendation on Lockheed Martin’s stock but a buy rating on Leonardo DRS, RTX, and L3Harris Technologies shares.
The U.S. Navy gave RTX’s Raytheon division a $1.1 billion deal earlier this year. The contract is an attempt to increase AIM-9X Block II missile production. The U.S. Army just awarded RTX a $5 billion contract for the Coyote missile system.
Stallard cited “surging interest” in the air, sea, and land domains and pointed out that the current need for missiles includes both offensive and defensive capabilities. The creation of hypersonic missiles was another argument the analyst made. He clarified that in addition to aircraft and incoming ballistic missiles, air defense systems now need to take drones into consideration. He noted that the U.S. Golden Dome project has further stimulated the development of counterdrone technology in addition to traditional defenses.
Additionally, defense-related companies Boeing Co. (BA), GE Aerospace (GE), Heico Corp. (HEI), Howmet Aerospace Inc. (HWM), TransDigm Group Inc. (TDG), and Textron Inc. (TXT) have buy ratings from Vertical Research Partners.
