The aerospace and defense sector has taken flight in 2024, with investors flocking to companies in this space. The iShares US Aerospace & Defense ETF (ITA) has soared a remarkable 22% year-to-date, fueled by a confluence of factors, including geopolitical tensions and robust demand.
To navigate this rapidly evolving landscape, RBC analyst Ken Herbert recently provided a comprehensive assessment of key industry players. His insights offer valuable perspectives on company valuations, future growth prospects, and the overarching trends shaping the sector.
Boeing: A Favorable Risk-Reward Profile
Herbert maintains an Outperform rating for Boeing, lowering its price target from $220 to $200. He remains optimistic about the company’s prospects, citing a strong demand for narrowbody aircraft and a favorable risk-reward profile. Herbert believes that the ongoing labor strike at Boeing will be resolved before the company releases its third-quarter earnings, minimizing any potential disruption.
General Electric: A Mix of Cautious Optimism
While Herbert raised General Electric’s price target from $190 to $210, he simultaneously lowered his estimates for LEAP engine deliveries in 2024, 2025, and 2026. Despite this, he remains upbeat about the company’s prospects, highlighting the strong aftermarket demand for spare parts and the potential for favorable pricing.
General Dynamics: Cautious Optimism Amidst Challenges
Herbert lowered General Dynamics’ price target to $320, attributing the move to challenges in Gulfstream delivery estimates, particularly for the G700 aircraft. Despite these headwinds, he remains bullish on the company, recognizing the potential upside driven by the ongoing war in Ukraine.
Airbus: A Strong Backlog and Continued Growth
Herbert lowered Airbus’ price target from 180 euros to 160 euros due to lower delivery estimates in the near term. However, he remains confident in the company’s long-term prospects, emphasizing its strong backlog, healthy cash position, and margin expansion capabilities.
Industry-Wide Outlook: Uncertainties and Opportunities
Herbert acknowledges the industry’s impressive performance in 2024, but notes that there are uncertainties ahead. He sees investor sentiment remaining positive on defense stocks, with concerns about near-term upside after the recent strong gains. He believes the aerospace aftermarket will continue to see strong growth, but the outlook for original equipment manufacturers (OEMs) remains uncertain.
Key Takeaways
Herbert’s analysis highlights the complexities of the aerospace and defense industry. While the sector is experiencing a surge in activity, there are both opportunities and challenges ahead. Investors should be aware of the potential for near-term volatility while recognizing the long-term growth potential of this dynamic sector.