Top Five Aerospace and Defense Stocks - TheStreet

BOSTON (TheStreet) -- The following aerospace and defense stocks receive top marks from our equity model. They are ordered by their potential to appreciate, from worst to best.

5. L-3 Communications

(LLL) - Get Report

sells command, control, communications and surveillance systems.

The numbers

: Fourth-quarter net income decreased 14% to $227 million, but earnings per share fell less, by 4% to $1.93, helped by a smaller float. Revenue grew 4.9% to $4.2 billion. The operating margin widened from 10% to 11%. L-3 holds $1 billion of cash and $4.1 billion of debt.

The stock

: L-3 Communications advanced 25% in the past year, lagging behind the

Dow Jones U.S. Aerospace and Defense Index

. The stock trades at a price-to-projected-earnings ratio of 10, a discount to peers. The shares offer a 1.8% dividend yield.

4. Stanley

(SXE) - Get Report

sells IT-services to U.S. defense and intelligence agencies.

The numbers

: Fiscal third-quarter profit increased 22% to $12 million, or 49 cents a share, as revenue grew 12% to $227 million. Stanley's operating margin hovered beneath 9%. Its balance sheet stores $2.3 million of cash and $138 million of debt.

The stock

: Stanley dropped 18% over the past 12 months, underperforming the Dow Jones U.S. Aerospace and Defense Index. The stock has a PEG ratio, a measure of value relative to growth, of 0.6. A PEG ratio of less than 1 implies cheap shares.

3. Raytheon

(RTN) - Get Report

designs high-tech systems, including missile defense.

The numbers

: Fourth-quarter profit expanded 20% to $504 million, or $1.30 a share, as revenue climbed 9.5% to $6.7 billion. Raytheon's operating margin rose from 10% to 12%. The company holds $2.6 billion of cash and $2.3 billion of debt.

The stock

: Raytheon returned 29% in the past year, trailing the Dow Jones U.S. Aerospace and Defense Index. The stock trades at a price-to-projected-earnings ratio of 11 and a price-to-book ratio of 2.2, a discount to peers. It offers a 2.2% dividend yield.

2. Argon ST

(STST)

designs communications and electromagnetic systems.

The numbers

: Fiscal first-quarter profit fell 11% to $4.6 million, or 21 cents a share, as revenue dropped 13% to $73 million. Argon ST's operating margin extended from 9.1% to 10%. Its balance sheet contains $25 million of cash and no debt.

The stock

: Argon ST increased 38% during the past 12 months, underperforming the Dow Jones U.S. Aerospace and Defense Index. The stock trades at a price-to-projected-earnings ratio of 19, a premium to peers. The shares are cheap when comparing book value.

1. American Science and Engineering

(ASEI)

designs X-ray detection products.

The numbers

: Fiscal third-quarter profit decreased 42% to $5.8 million, or 64 cents a share, as revenue contracted 16% to $55 million. The operating margin narrowed from 23% to 16%. The company holds $159 million of cash and $8.7 million of debt.

The stock

: American Science and Engineering ascended 17% in the past year, less than the Dow Jones U.S. Aerospace and Defense Index. The stock trades at a price-to-projected-earnings ratio of 18, a premium to peers. It is cheap based on book value.

-- Reported by Jake Lynch in Boston.