Ahead Of The Bell: Defense Sector

HARTFORD, Conn. (AP) — Shares of defense companies are expected to decline less than the broader market with a recovery expected to begin later this year, an analyst said Monday.

Analyst James McIlree of Collins Stewart said he expects a recovery for defense contractors in the fourth quarter of this year and earnings to rise about 10 next year. Of 31 defense companies that reported recent earnings, 20 beat estimates and six missed, McIlree said.

"We expect earnings strength to continue from defense businesses, offset by lingering weakness in commercial outlooks," he said.

However, due to pressure on defense spending, "we do not think we are likely to see an expansion to prior levels, but some further expansion off current depressed levels is possible," McIlree said.

He raised his price target for Harris Corp., a manufacturer of military radios, to $45 from $40. The Melbourne, Fla., company has indicated that ordering delays by the Defense Department could be easing, which would have "positive implications" for other Pentagon contractors, he said.

"Our expectation that order delays would lead to potential estimate reductions for the company's June quarter proved false," McIlree said in a client note.