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How Are Aerospace & Defense ETFs Reacting to Q3 Earnings?

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The U.S. economy is gradually witnessing improving COVID-19 conditions. The prospects for all the U.S. sectors are becoming brighter as demand is growing amid reopening global economies. Although the supply-chain disturbances are an overhang, the same seems to be temporary and manageable.

The players in the aerospace and defense spaces had to struggle with business-related issues like increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, and the effects of remote work and adjusted work schedules to some extent.

Expansionary U.S. budgets can boost businesses of some major players in the defense sector. As part of the fiscal 2022 defense budget request, $752.9 billion is allocated as funding to the Pentagon, highlighting a 1.7% increase from the fiscal 2021 level (per the verified sources).

Moreover, heading into the holiday season, given the reopening of domestic and international borders for traveling, we are enthusiastic about U.S. economic growth. The United States is gradually relaxing travel restrictions and reopening to completely vaccinated international travelers. The news is driving enthusiasm for the economic and travel recovery. In fact, airlines recently hinted at a solid travel trend.

The third-quarter earnings season has been going strong so far. Of the 90.9% S&P 500 companies belonging to the sector, 90% already beat on earnings along with reporting a 37.7% year-over-year rise in the metric (per the Earnings Trends report as of Nov 10, 2021).

To give a better idea about the third-quarter earnings results we also highlight the performance of some major players in the space:

Lockheed Martin Corporation (LMT - Free Report) is the largest defense contractor in the world. Its main areas of focus are defense, space, intelligence, homeland security and information technology including cyber security.

On Oct 26, Lockheed Martin reported third-quarter 2021 adjusted earnings of $6.66 per share, which outpaced the Zacks Consensus Estimate of $1.96 by 239.8%. Net sales of $16.03 billion missed estimates by roughly 6.6%. The numbers compared unfavorably with the year-ago revenues of $16.50 billion.

Also, LMT’s cash and cash equivalents totaled $2.73 billion as of Sep 26, 2021 compared with $3.16 billion at the end of 2020. 

Lockheed Martin currently expects to generate revenues worth around $67 billion for 2021, lower than its previously guided revenue range of $67.30-$68.70 billion. Earnings per share are expected to be $27.17 for 2021 compared with $26.70-$27.00 projected earlier. 

Northrop Grumman (NOC - Free Report) supplies a broad array of products and services to the U.S. Department of Defense (DoD) including electronic systems, information technology, aircraft, space technology and systems integration services. 

On Oct 28, Northrop Grumman reported earnings per share of $6.63, outpacing the Zacks Consensus Estimate of $5.93 by 11.8% in the third quarter of 2021. Moreover, the bottom line rose 13% from $5.89 in the year-ago quarter. However, NOC’s revenues of $8.72 billion lagged the consensus estimate of $8.87 billion and decreased 4% from the year-ago quarter’s $9.08 billion.

Its cash and cash equivalents as of Sep 30, 2021 were $4.06 billion, down from $4.91 billion as of Dec 31, 2020.

Northrop Grumman currently expects to generate revenues worth $36 billion compared with its earlier guided range of $35.80-$36.20 billion. NOC’s 2021 earnings are currently projected in the range of $25.20-$25.60 per share, up from its prior guided range of $24.40-$24.80.

The U.S. Aerospace and Defense ETFs with notable exposure to most of the above-mentioned companies can be tracked to see the impact of the earnings releases:

iShares U.S. Aerospace & Defense ETF (ITA - Free Report)

iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircrafts and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index.

Holding 33 securities in its basket, the in-focus firms account for a combined 9.9% share of the fund. iShares U.S. Aerospace & Defense ETF has an AUM of $2.63 billion and an expense ratio of 0.42%. ITA has a Zacks ETF Rank #2 (Buy) with a Medium-risk outlook.

SPDR S&P Aerospace & Defense ETF (XAR - Free Report)

SPDR S&P Aerospace & Defense ETF seeks to track a modified equal-weighted index, which provides the potential for unconcentrated industry exposure across large, mid and small-cap stocks.

SPDR S&P Aerospace & Defense ETF comprises 32 holdings with the above-mentioned companies having 8.1% weight. XAR has an AUM of $1.21 billion and an expense ratio of 0.35%. SPDR S&P Aerospace & Defense ETF currently has a Zacks ETF Rank of 3 (Hold) with a Medium-risk outlook.

Invesco Aerospace & Defense ETF (PPA - Free Report)

The Invesco Aerospace & Defense ETF is based on the SPADE Defense Index. The Index is designed to identify a group of companies involved in the development, manufacturing, operations and support of US defense, homeland security and aerospace operations. 

PPA has an AUM of $697.1 million and an expense ratio of 0.61%. The Invesco Aerospace & Defense ETF comprises 54 holdings and the in-focus firms holding 12.2%. PPA currently has a Zacks ETF Rank #3 with a Medium-risk outlook.