The analyst said that much of the gains have come from multiple expansion and not earnings growth, with earnings estimates actually coming down at some companies during the time period. Some of that multiple expansion is just a bounce back from lows hit as the political infighting first intensified, but Gesuale said more recent gains appear to assume that sequester cuts would eventually end and the government would not grind to a halt.

With a large number of companies chasing a shrinking revenue pot, consolidation should be in order. But defense bankers say that despite the long-term risks seller expectations remain high, stunting deal talk. Buyers want a bargain if they are to buy rivals that could see their business shrink in the years to come, but sellers are asking for prices that assume no such shrinkage will occur.

"Until we know what the future will look like, it is hard to make plans," one defense banker said.

Written by Lou Whiteman

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