3 Defense Stocks Just Beat Earnings By A Mile. One Still Has Room To Run.

This week's earnings may be leading to a sell-off in tech, but another sector is getting a nice little boost from this week's earnings report. Joining us now is Market Beats Chris Marott with a look at three big names in defense that are all getting a little postearnings boost in their stock price action and also we'll look at long-term why these three names are great investments for retail investors to pay attention to. Chris, thanks for joining us today. Uh I know big tech is the story that everyone's talking about, but there are other earnings reports happening right now and they are moving the market in other ways. So let's talk about what we're seeing in the defense sector this earning season. >> Yeah. So this week we got the earnings reports from three of the biggest names in the defense industry. All of them did what you would have expected them to do. There was all double beats. They're all showing strong backlogs. It's a continuation not only of the current conflict between the US and Iran, but it's also the idea of the modernization of the military. This is a long-term story in the defense industry. >> Yeah, we're going to dive into all three of those names right now and give an analysis on whether they're a good buy with where they're at right now, kind of what's been happening in the price action and what's leading to this really positive earnings reports that we saw this week. What you won't find in this conversation are discussions on those smaller cab drone companies and other, you know, defense aerospace companies that a lot of our viewers are very, very interested in. And we'll talk about them a little bit in conjunction to these larger companies. But I'm curious to see, Chris, if you think this boost in defense could also help boost some of these smaller names that many of our viewers have been interested in or took kind of that speculative investment on and they've been down so much. Redcat, Andis, uh, other stocks like that. Do you think we're going to see um a little boost for them based on what's happening with these big players in defense? >> I think you're going to see a boost in those companies. I think the catalyst for those companies is not necessarily going to be what the major defense contractors reported. The catalyst for them is going to be um a resolution around the spending and how this is going to get funded. That could be a totally separate video and it would probably bore a lot of people. But the reality is until that funding piece gets nailed down on Capitol Hill, that's what's probably holding some of those stocks back right now. But from what I've been hearing from companies like Aervironment and others, they're continuing to do the work even though they know that they might have to wait on the funding. It's so it's just really a question of they're trying to fill a backlog. The catalyst I think for the stocks is going to be when that funding is approved and ready to go. >> Yes, those funding approvals and also figuring out exactly how much of that funding, what piece of the pie each of these companies is actually going to get. And I think that will determine which of those smaller players get to be the bigger winners. If you are interested in more of these smaller names, make sure to check out this brand new article on MarketBeat. It's a story on five small stocks that analysts see some major upside for. This is a premium article normally for our paid subscribers, but because you are watching our YouTube channel, you can access it for free and check out those five names that have some major upside according to the analyst. You can scan the QR code or click the link in the description to get that free article right now on Market Beat. All right, Chris, let's get to that first defense company we're talking about right after earnings. What did their earnings show? >> Okay, so we're going to start with probably the biggest and the best. It's Lheed Martin. They reported on Thursday morning numbers were solid across the board, $20.1 billion in revenue, about I think it was $7.94 in adjusted earnings per share. And then the number that I think investors should be really locking in on the most is their booktoill ratio. That's the number that means for every dollar of product they shipped out the door, they booked new orders for. And that came out at 3.2 times. So, every dollar that went out the door, they booked $3.2 of new orders. Um, they have a $230 billion backlog. You know, this was just it was a solid earnings report and you're seeing that reflected in the stock price. >> And clearly, the market loves to see a company that has their books in order. Let's take a moment to talk about whether you have your own books in order. A big thank you to Monarch for sponsoring today's video. 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Scan the QR code or follow the link in the description to get 50% off your first year of Monarch. Let's see how it can help you reach your own financial goals. All right, Chris, let's get back to Loheed Martin and how the market is reacting. Up 11% after this earnings report. So, clearly they are loving what they see. a really nice jump for the stock that's been down quite a bit since about that March time frame. What do you think about the market's reaction to that report? >> I think it's pretty much what you would expect and I think that's because of not only the numbers that came out in the report, but the idea that just in the last week we're seeing the fact that the temperature has been turned up. It looks like we're going to continue to be in this kinetic phase of the conflict with Iran. So if that's the case, Lockheed is front and center in that and that's just going to drive up the stock. >> Now with these companies in particular, one thing I think that's important to talk about is looking at the earnings and the fundamental and not just the price action because when you look at the price action in this chart, you can see a lot of the ups and down moves tend to follow the headlines, especially when you have a major ongoing conflict that it has on again offagain situations. So would you agree with that, Chris, about looking at the actual fundamentals versus paying attention to the volatility that moves with headlines in this geopolitical issues? >> Yeah, I I would I think some of that's going to depend on whether or not you're looking at these stocks as a trade or as an investment. If you're looking just to get in and get out with a trade, then certainly you're looking at the momentum that you're going to get with the earnings movements and things like that. But I think the better choice with many of these defense names, the the larger cap defense names, I mean, is you're looking at these stocks as buying and holding for a long time. And certainly that dip that you've gotten in locked since March seems like you had a pretty good entry point about a month ago when the stock was 12 13% lower than where it is now. It's had a nice run in the last month. I think that run's going to continue. the things that to your point Bridget that I would look for in the report you saw operating profit was up free cash flow is up and they're guiding higher on both of those so the traditional metrics that investors and analysts are going to be using they're seeing that Lockheed's guiding to further growth in those categories that's what's going to ultimately you're going to see better free cash flow better earnings that's going to be the driver of stock price growth >> and I want to talk a little bit more about what analysts are saying about Loheed Martin and the growth story potential here. Again, I mentioned early on a lot of our viewers are always looking at these smaller cap defense companies, smaller cap drone companies looking for bigger growth for their own investment. And you look at Lheed and of course the upside on this from from analysts is only about 7% from where it trades today. uh you do see some outliers there that would give it more upside, but I think it's interesting looking at what analysts say about Lockheed to see that one of the most recent price targets is actually a downgrade to right about where the stock is trading today. So let's look at the growth potential with a company like this that's so massive and so huge. What can investors expect if you are going to be investing in Loheed Martin after this earnings report? Lockheed presents an interesting situation because again they're so far down from that all-time high where they were at in March. But I think if you just even if you look at the company on a on a 5-year chart, it's still down from where it was about this time last year or two years ago, I'm sorry, I don't think it's unreasonable to suggest that this stock could easily get up into that 613 $615 range. And that's about right where the analysts have it right now as a consensus target. But the key is going to be watch what the analysts do after this report because again some of the models that are projecting that that Loheed Martin is overvalued at this are only looking at growth in terms of free cash flow in terms of earnings of around 2 or 3%. They blew that out of the water in terms of you know free cash flow in this report. So you may have analysts readjusting their models based on this growth and what they're forecasting the growth is going forward. >> For investors who might be interested or maybe haven't invested in any of these, you know, big defense leaders, what's the benefit of having some of these in your portfolio? What would you consider this kind of investment to be as part of your overall portfolio? >> You're looking at this as part of a growth portfolio. And the reason I would say that is, and this is going to be something that we're going to talk about with all three of these, Lockheed is a name that is needed right now. They're the key provider of um things like the Patriot Pack 3 missiles and the THAAD system. They're the key provider of that and we need that right now. The United States needs that right now for the conflict with Iran. But Lockheed is also a participant in you know the modernization of the military. So it has its toe in the space sector. So it would be incorrect to say that some of these bigger names aren't participating in that modernization story. They may not get the whole pie, but they're going to get a nice share of it. >> Yeah, I think that's an important conversation. We're going to continue that with the next company, too, which is another big leader in the defense area. It's so interesting to see how competitive these big giant companies who are known for, you know, their tankers and the old school way of military, how they're competing with this new uh AI improved defense uh setup. So, let's get on to that second name and continue that conversation. >> Okay, so the next name we're going to talk about is North of Grumman. Uh ticker symbol is NOC. Let's go through the headline numbers here. Uh they have a $ 105 billion backlog. That's a record. That's they were up 17% year-over-year, which I just said was a record for them. Uh sales came in at $10.9 billion. That was up 5% year-over-year. One number that investors are want to look at here is EPS came in adjusted EPS came in around $7.68. And that look and that was a 6% lower on a year-over-year basis. But this is something for investors to pay attention to. Last year's number at this time included a one-time gain from Northrrook selling their training services business. So if you strip that out then this year's EPS was actually up year-over-year. And like Loheed Martin, North Grman raised their guidance with adjusted EPS now around 2860 to 2910 for the full year. >> All right, another really strong report. Important to point out that uh looking at that true comparison uh year-over-year for EPS, I think that's a great point to look at. Let's talk a little bit more about Competitive Edge and where this company is growing. Are they actually growing some of those high in demand new modern warfare parts of their company? >> Their marquee program as far as longerterm modernization. That's the B-21 Raider program. It's the next generation stealth bomber. The company already reported that aeronautic sales were up 13% this quarter. management. Specifically in the earnings report, they called out an agreement to accelerate B-21 production capacity as a long-term value driver. So again, they're not only contributing to what's happening right now, but they're also a critical part of what's going to be coming in the future. >> So there's some positive growth potential there. And uh this one looks really attractive right now for investors who are maybe new to this or or adding more to their portfolio because of that price action. When you look at the chart, this one's down a good little bit for the year, which makes it a little bit more interesting, especially when you look at what analysts are saying about this one, too. >> Compared to the other stocks that we're talking about here, this stock, Northrup Grumman, right now has the most upside compared to the consensus target. The consensus right now is around 657 as we're taping this. That would be about a 21% upside from where the stock is trading at. And all three of these stocks, it's important to note, they pay at least a modest dividend. Um the the yield for Northwork Grumman is about 1.83%, but they've been growing the dividend for 22 consecutive years. They've grown at about 9.6% for the last over the last three years annually. So you look at the stock and you'd say this is one that you're getting you're getting paid to wait and you're also you've also got potential of over 20% growth over the next over the next year. Now, you also look at the 52- week range on this one, and this is much more towards the bottom of that 52- week range rather than towards the top. So, I know I hear from plenty of viewers who don't like to talk about stocks when they're at their top. So, this is this is a good one for you. And I think just uh uh out of respect for what you guys like to see, I'm going to add this one to my Bridget Spies watch list because of where it is on that 52-E range and a lot of the the fundamentals that Chris talked about, too. I think that uh once those contracts start coming and seeing how much of that contract piece of the puzzle Northrup gets could really determine how much growth this stock sees over the next year or two, 5 years. So, um if you haven't checked out purchase buys watch list yet, it is my paper trading watch list. I usually add one stock per video that we talk about just to follow how it moves over time. You can scan the QR code or click the link in the description to check out Bridget's Buys and follow along. See if some of the stocks that you own are also on that watch list. Some of these are doing incredibly well, others are down quite a bit for the year, and I'm sure your own portfolio is feeling some of that, too. Uh, go ahead and check out that page and let me know what you think. All right, Chris, let's get on to that third company. We talked about two massive giants in defense. Let's get to this third one. >> So, the third one we're talking about is um RTX. They were current, they were formerly the company known as Rathon. Um, Rathon is still a part of the company. It's just they they label themselves RTX and it just encompasses a lot of brand names in the industry like uh like for example Collins, Pratt, Whitney, all those are two of the brand names that fall under the RTX umbrella. So what did they report? Uh adjusted sales were up $24.7 billion. That was up 16% organically. Adjusted EPS came in at $189. That was up 21%. The backlog came in at 289 billion. That was up 22%. And then they had $43 billion of new awards in the quarter with nearly 20 billion of that in the company's RAON segment alone. So a blowout quarter. They ra like the other two. They raised their guidance for fullear adjusted EPS. It's now they raised it to SE to a range between $710 and $7.25. And that was up from $6.70 to $6.90. So that's that's an impressive jump. And again, earnings is what feeds stock price growth. And earnings growth feeds the analyst models, which I've been saying. Some of these analyst models, they're guiding to more modest growth in the low single digits. These numbers are coming in just those numbers are guiding to mid to high singledigit growth in EPS which may mean that the the price targets for this company are going higher. >> Yeah, let's talk about the price target growth on this one. Really the names we talked about so far today. Lockheed was up 11% on Thursday. RTX up almost 8% on Thursday morning. So clearly the market is happy with the results that we're seeing. I also think that those uh price jumps really stand out because we in one case we're seeing a double-digit price jump for this stock and I think it really stands out because we are seeing so much red in some of these huge tech names in the market right now. So this area is standing out as a really strong part of the market at least for this week as these earnings are coming out. Why do you think we're seeing such a positive reaction from the market for these earnings versus what we're seeing in tech earnings? What's the difference here? Part of it is going to be emotion. I think part of it is because in the conflict with Iran is turning more negative, i.e. it's more kinetic right now. So I think there's investors that are looking short term and saying we're going to need a lot more of these companies products in the short term and that's driving the price up. I think the other part of it is as I've talked about a lot, Bridget, earnings reports are like they're like progress reports. So these companies are confirming that their results in the last quarter were good and then they're also raising their guidance which means they're telling investors we're projecting that the rest of this year is going to be strong and that's going to drive the growth. Again a lot of these analysts targets they don't analysts are very conservative usually in what their estimates are. They don't like to get ahead of the train. But right now, when you're guiding to the kind of growth that these companies are guiding to it, and I'm not sitting there saying it's eyepopping growth. I'm not saying they're guiding to 20 to 30% growth like a tech company, but they're certainly guiding to growth that's more in that high single digits, even maybe doubledigit growth. And some of the models are projecting them to be at like that low to mid singledigit growth. That's where the discrepancy can come in. It's going to be interesting to me to see what happens over the next several days to see uh where these price targets go and what the analysts do. And a company like Northrup that we just talked about, that'll be really interesting because they're they're about 20% below the analyst target. But even now, you got companies like RTX, which the gap up is taking them right up to about their 52- week high. It'll be interesting to see now if the analysts take them higher than that. Yeah. Yeah. I think that analyst price predictions on these are are also interesting to look at. I also think with RTX in particular, it's important to point out that this one is closer to its 52- week high that the chart action has been very positive for this stock. And so, um, maybe not as attractive as an entry point for investors. Chris, what do you think? >> I think you got to give it the 24-hour rule. You got to wait and see what's going to happen the day after the report comes out and see uh what the price action is because just because the stock gaps up like it did doesn't mean that it's going to stop there. It could have more to go. I think a lot of that's going to depend on where the analysts come out at. If the analysts are seeing the same thing that I'm seeing and if they're saying and if they're going to change their models and are going to model for that higher growth, you could see this stock get a little bit more of get get a little bit more juice to move higher. And again, like I've said, all these companies pay a dividend. So, that's something that you're you are getting paid. I I like Lockheed and Northrrook for the dividend more than I do for RTX. But I think with RTX, you might be getting a company where even though it's at the top of its 52- week range, you might be getting better growth here. >> Yeah. I want to get back to what these uh you know, huge companies, the giants who've been around forever have those kinds of dividends, what this positive earnings week for these three companies could mean for the rest of the defense sector. And again, if you are interested in those smaller stocks, make sure to check out that free article. Again, it's a special offer, brand new just this week. You can scan the QR code or click the link in the description to learn more about those five stocks that analysts are incredibly bullish on that have a lot of upside. And there are some of those smaller names, not the big giants that are around. So, you can check out that article for free today, too. But let's get to some of the smaller companies. Chris, in the defense sector, I'm looking at just a couple of names. You mentioned Aero Environment. That one was also up on Thursday morning, but it doesn't report earnings until September. Uh we have another one Redcat, another one of those struggling drone stocks uh got a nice small little boost today potentially on some of this news. So let's talk about that. Does that that this big ship, you know, these three giant names help to lift the entire sector or is this just going to be a short-lived reaction to the boost in defense that we're seeing this week? >> For some of these smaller companies, I think it's going to be a short-term boost. I think for these companies, they're going to have to now show that what you're seeing with some of the bigger names applies to them because you have to remember with some of these companies, some of the smaller companies here, they're not yet profitable. That's not the case with Air Environment, which is profitable, but like a RedCat, it's not profitable yet. And you're measuring here their revenue in the in the millions. Whereas with a company like Lockheed, you're talking about earnings and you know, you're talking about revenue in the billions. So smaller scale, I think it's going to be really important for them to see what they report individually on their earnings reports. But directionally, I think what you're seeing from some of the bigger names is that backlog. Because that backlog is not just about what's going on in the Middle East right now, but it's about that modernization. And that's where these other companies are really going to be big. So investors are going to want to pay attention to what those backlog numbers are, what they're looking at because that's going to be what's going to allow them to in the case of a company like Redcat, it's going to put them on the path to profitability. And on a case like a company like Air Environment, it's going to allow them to grow that earnings. And again, that's what investors are looking for. >> Well, Chris, thank you for diving into the defense sector a little bit more in these three names. It's been a while since we covered defense on the show. This is the last time we talked about it and we were absolutely talking about some of those smaller companies.