The Zacks Aerospace-Defense Equipment stocks are poised to gain from strategic mergers and acquisitions that improve operational scale, diversify product offerings and increase market presence. At the same time, strong air traffic growth projection is expected to drive higher demand for aircraft parts and services due to increased fleet utilization. However, ongoing supply-chain disruptions, including component shortages and labor constraints, remain a key risk, potentially raising costs, delaying production and limiting the industry’s ability to fully capitalize on this growing demand. Some key players from this industry that investors may add to their portfolio are AAR Corp. (AIR Quick QuoteAIR - Free Report) , Astronics (ATRO Quick QuoteATRO - Free Report) and Innovative Solutions and Support (ISSC Quick QuoteISSC - Free Report) . 

About the Industry

The Zacks Aerospace-Defense Equipment industry comprises firms that manufacture various vital components for the aerospace-defense space, ranging from aerostructures, space shuttles, propulsion systems, aircraft engines, defense electronics, missile and radar systems, to flight test equipment, structural adhesives, instrumentation and control systems, communication products and many more. Some of these companies also offer integrated simulation and training services to the U.S. defense force. While most revenues are generated from the production of the aforementioned accompaniments, industry players also generate revenues by providing notable aftermarket support and services like maintenance, repair and overhaul activities to aerospace and defense players.

3 Trends Shaping the Future of the Aerospace-Defense Equipment Industry

New Mergers and Acquisitions (M&As) Instill Hope: Large companies have traditionally used M&As as a successful strategy to broaden their product offerings. By acquiring other businesses, they can quickly expand their capabilities and stay competitive. In February 2026, Innovative Solutions and Support completed the acquisition of the Moog S-TEC® Model 3100 general aviation fixed wing autopilot product line. This acquisition will help the company expand its flight-control capabilities and offer more comprehensive, end-to-end solutions across commercial, business and military aircraft. In January 2026, Teledyne Technologies acquired DD-Scientific Holdings Limited and its subsidiary DD-Scientific Limited. DD-Scientific. This deal will expand Teledyne Technologies’ portfolio with high-precision gas-sensing technology, strengthening its position in environmental, industrial, healthcare and semiconductor markets while enabling cross-selling and higher-value integrated solutions. Such consolidations gain access to a broader range of business models, while improved economies of scale across the sector should support market expansion and revenue growth.

Air Traffic View Boosts Opportunities: According to a report published in March 2026 by the International Air Transport Association (“IATA”), global air passenger demand is expected to more than double by 2050, growing at a compound annual growth rate (CAGR) of 3.1% to reach 20.8 trillion Revenue Passenger Kilometers (RPKs). Under the mid-range scenario, passenger traffic is projected to increase from 9 trillion RPKs in 2024 to 20.8 trillion by 2050, while high and low scenarios range from 21.9 trillion to 19.5 trillion RPKs. The report also stated that different scenarios are driven by alternative modeling of long-term economic growth, populations, aviation fuel price trends, the global energy transition, and air transport supply-side capacity development. As passenger traffic increases, airlines fly their existing fleets more frequently. This higher utilization accelerates wear and tear on aircraft, engines and components, boosting demand for replacement parts, avionics, landing systems and other equipment. 

Supply-Chain Disruption Poses Risks: According to IATA, ongoing supply-chain constraints are expected to hinder airlines from reaching their full growth potential and slow progress toward reducing CO??? emissions. The association highlights that limited aircraft availability and labor shortages remain key supply-side challenges, while broader disruptions continue to delay the timely production and delivery of essential systems. Shortages of critical inputs, such as semiconductors, specialty metals and electronic components, can delay manufacturing processes and extend project timelines. Heavy dependence on globally sourced materials further exposes the sector to geopolitical conflicts, trade barriers and logistical constraints. As a result, costs tend to rise, operational efficiency declines and the ability to rapidly ramp up production during periods of urgent demand is compromised, ultimately affecting overall defense preparedness.

Zacks Industry Rank Reflects Bright Outlook

The Zacks Aerospace-Defense Equipment industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #84, which places it in the top 35% of more than 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few aerospace-defense equipment stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Beats S&P 500 & Sector

The Aerospace-Defense Equipment industry has outperformed the Zacks S&P 500 composite and the sector in the past year. The stocks in this industry have collectively surged 34.6% over the past year, while the Aerospace sector has soared 24.5%. The Zacks S&P 500 composite has gained 21.3% in the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of trailing 12-month EV/Sales, which is used for valuing capital-intensive stocks like aerospace-defense equipment, the industry is currently trading at 13.64X compared with the S&P 500’s 5.34X and the sector’s 3.32X.

Over the past five years, the industry has traded as high as 15.49X, as low as 5.71X and at the median of 8.3X. 

EV-Sales Ratio TTM

 

3 Aerospace-Defense Equipment Stocks to Buy

Innovative Solutions and Support: Based in Exton, PA, the company designs, manufactures, and sells flight avionics products — electronic instruments used in aircraft operations — to military and government, commercial air transport, and corporate aviation markets, primarily for upgrading or retrofitting aircraft currently in service. In the first quarter of fiscal 2026, the company completed the relocation of its F-16 component production to its expanded Exton facility and expects revenues from this program to grow throughout the year. By bringing assembly in-house, the company anticipates improved manufacturing efficiency and higher profit margins by fiscal 2026.

The Zacks Consensus Estimate for ISSC’s fiscal 2026 sales indicates an 8.4% improvement year over year. The estimate for fiscal 2026 earnings implies 7.2% growth year over year. ISSC currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

Price & Consensus:  ISSC

AAR: Wood Dale, IL-based, the company provides various products and services to the aviation and defense industries worldwide. On March 24, 2026, AAR reported its fiscal third-quarter 2026 results. Its consolidated quarterly sales increased 25% to $845.1 million. Sales to commercial customers increased 27%, or $130 million, primarily due to double-digit organic growth across new parts Distribution within the company's Parts Supply segment and the impact of the company’s acquisitions of HAECO Americas and ADI. The release outlines several strategic initiatives aimed at strengthening the company’s market position. An exclusive distribution agreement with TRIUMPH for actuation power systems on Boeing and Airbus platforms expands its presence in the commercial aerospace supply chain. At the same time, newly secured multi-year contracts with the U.S. Air Force, worth up to $450 million, boost its defense segment with long-term, high-value work in mobility systems.

The Zacks Consensus Estimate for AIR’s fiscal fourth-quarter 2026 earnings indicates an 18.1% improvement year over year. The consensus estimate for fiscal 2026 earnings has increased 2.1% in the past 30 days. AIR currently carries a Zacks Rank #2 (Buy). 

Price & Consensus:  AIR

 

Astronics: Based in East Aurora, NY, the company is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport and private business jet aircraft. The company reported strong overall growth in the fourth quarter, with total sales rising 15.1% to $240.1 million. This increase was mainly driven by strong performance in its Aerospace segment, where sales grew 16.5% to $219.6 million. For the period ended on Dec. 31, 2025, the company received $257.2 million worth of bookings. As a result, it ended the quarter with a solid backlog of $674.5 million. 

The Zacks Consensus Estimate for ATRO’s 2026 sales indicates an 11.6% improvement year over year. The estimate for 2026 earnings implies 30.4% growth year over year. ATRO currently carries a Zacks Rank #2. 

Price & Consensus:  ATRO