NEW YORK (TheStreet) -- The U.S. aerospace industry generates more export sales than any other U.S. manufacturing industry. It exported almost 65% of all production in 2012 and generated over $70 billion in exports. The industry employs 500,000 highly skilled workers and gives rise to 700,000 jobs in its supply-chain companies.
Industry sources project that the industry will produce 34,000 large commercial airplanes over the next 20 years and those planes will be valued at $4.5 trillion. This projection represents solid 3.5% growth each year. The industry also benefits from spending on defense. Given the state of instability in the world, defense spending is likely to increase, thus benefiting the industry further.
So, what are the best aerospace & defense companies investors should be buying? Here are the top six, according to TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which six aerospace & defense companies made the list. And when you're done be sure to read about which online retail and e-commerce companies to buy now. Year-to-date returns are based on May 11, 2015 closing prices. The highest-rated stock appears last -- read more to see which one is No. 1.
Textron Inc. operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial, and Finance.
"We rate TEXTRON INC (TXT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel its strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TXT's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 7.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- TEXTRON INC has improved earnings per share by 48.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TEXTRON INC increased its bottom line by earning $2.15 versus $1.75 in the prior year. This year, the market expects an improvement in earnings ($2.48 versus $2.15).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Aerospace & Defense industry. The net income increased by 50.6% when compared to the same quarter one year prior, rising from $85.00 million to $128.00 million.
- You can view the full analysis from the report here: TXT Ratings Report