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Senate Approves $700 Billion Defense Bill: Stocks in Focus

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The Senate has approved a $700 billion National Defense Authorization Act, which provides necessary funding to the U.S. Military to carry out activities in homeland and overseas. The bill authorizes $640 billion for national defense spending and $60 billion for Overseas Contingency Operations.

The defense expenditure for fiscal 2018 is expected to exceed fiscal 2017 levels by nearly $83 billion. The defense spending approved by the Senate is higher than what President Trump had requested for.

At present, the U.S. defense assets are engaged in hostile situations in Iraq, Afghanistan and other locations. Rising threat from ISIS and increasing North Korean display of military strength is causing discomfort to the United States and its ally, Japan.

It goes without saying that increase in defense spending will result in more orders for the companies operating in the industry. Apart from United States, Japan is also planning to increase its defense spending to counter North Korean threat.

Investing in the defense stocks is a lucrative option for investors given the prospects and solid returns from the space. In the last year, the Zacks Aerospace & Defense industry has gained 43%, significantly outperforming the S&P 500’s 14.5% rally.

 


Defense Stocks in Focus

Lockheed Martin Corp. (LMT - Free Report) possesses some high-profile missile defense programs including the Terminal High Altitude Area Defense System, Joint Light Tactical Vehicle and PAC-3 Missiles

The company currently carries a Zacks Rank #3 (Hold) and its projected earnings per share (EPS) growth rate for the next five years is 6.2%. The Zacks Consensus Estimate for current-year earnings has moved up 0.7% over the last 90 days.

The new defense bill authorizes $10.6 billion for procuring 94 Joint Strike Fighter aircraft, which exceeds the administration’s request by $3.1 billion and 24 aircraft. Lockheed being the manufacturer of different variant of Joint Strike Fighter F-35 is going to gain from this approval.

The company is also the manufacturer of C -130J aircraft and hence, will benefit from authorization of $1.6 billion for procuring 17 MC -130J aircraft, which is surpasses the administration’s request by $1.2 billion and 12 aircraft.

The Boeing Co. (BA - Free Report) , with its product portfolio spread across Military Aircraft, Network & Space Systems and Global Services & Support, is poised to gain from the new approval.

Boeing has a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Its projected EPS growth rate for the next five years is 13%. The Zacks Consensus Estimate for current-year earnings increased 6.2% over the last 90 days.

The new bill authorizes $2.9 billion for procuring 17 KC - 46A tankers, which is $400 million and two tankers more than the administration’s request. It also authorizes $3 billion for Army helicopters, including nearly $1.8 billion for different variant of Chinooks Helicopters. Boeing is going to directly benefit from this development.

Northrop Grumman Corporation (NOC - Free Report) provides systems, products and solutions to government and commercial customers in the areas of aerospace, mission systems and technology services worldwide. Its cyber solutions offer missile warning and defense systems.

Northrop Grumman has a Zacks Rank #2 stock and its projected EPS growth rate for the next five years is 7.5%. For current-year’s earnings, the Zacks Consensus Estimate has increased about 2.4% over the last 90 days.

The new bill authorizes $8.5 billion for the Missile Defense Agency to strengthen homeland, regional and space missile defenses, which is $630 million more than the administration’s request. Northrop with its expertise in missile systems is expected to benefit from this development.

Huntington Ingalls Industries Inc. (HII - Free Report) is a military shipbuilding company and provider of professional services to its partners in the government and industry.

The stock carries a Zacks Rank #2 and its projected EPS growth rate for the next five years is 15%. For current-year earnings, the Zacks Consensus Estimate has increased about 3% over the last 90 days.

The new defense bill authorized $25 billion for shipbuilding to fund 13 ships, which exceeds the administration’s request by $5 billion and five ships. Huntington Ingalls, being the manufacturer of Virginia class ship, will benefit from the accommodation of $3.1 billion for procurement of Virginia class submarines, which is $1.2 billion more than the administration’s request.

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