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.

TXT ChartTXT data by YCharts
6. Textron Inc. (TXT)

Rating: A

Market Cap: $12.6 billion
Year-to-date return: 7.6%

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.

RTN ChartRTN data by YCharts
5. 
Raytheon Company (RTN)
Rating: A

Market Cap: $32.8 billion
Year-to-date return: -1.3%

Raytheon Company develops integrated products, services, and solutions in the areas of sensing; effects; command, control, communications, and intelligence; mission support; and cyber and information security worldwide.

"We rate RAYTHEON CO (RTN) 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 largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, notable return on equity and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, RAYTHEON CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • RAYTHEON CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RAYTHEON CO increased its bottom line by earning $6.97 versus $5.96 in the prior year. For the next year, the market is expecting a contraction of 1.7% in earnings ($6.85 versus $6.97).

GD ChartGD data by YCharts
4. 
General Dynamics Corporation (GD)
Rating: A

Market Cap: $46.3 billion
Year-to-date return: 1.9%

General Dynamics Corporation operates as aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems.

"We rate GENERAL DYNAMICS CORP (GD) 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, solid stock price performance, impressive record of earnings per share growth, increase in net income and reasonable valuation levels. 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:

  • GD's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • GENERAL DYNAMICS CORP has improved earnings per share by 25.1% 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, GENERAL DYNAMICS CORP increased its bottom line by earning $7.83 versus $7.03 in the prior year. This year, the market expects an improvement in earnings ($8.55 versus $7.83).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Aerospace & Defense industry average. The net income increased by 20.3% when compared to the same quarter one year prior, going from $595.00 million to $716.00 million.

 


HON ChartHON data by YCharts
3. Honeywell International Inc. (HON)
Rating: A

Market Cap: $80.3 billion
Year-to-date return: 2.8%

Honeywell International Inc. operates as a diversified technology and manufacturing company worldwide.

"We rate HONEYWELL INTERNATIONAL INC (HON) 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 increase in stock price during the past year, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • HONEYWELL INTERNATIONAL INC has improved earnings per share by 10.2% 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, HONEYWELL INTERNATIONAL INC increased its bottom line by earning $5.33 versus $4.92 in the prior year. This year, the market expects an improvement in earnings ($6.10 versus $5.33).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Aerospace & Defense industry average. The net income increased by 9.7% when compared to the same quarter one year prior, going from $1,017.00 million to $1,116.00 million.
  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.95 is somewhat weak and could be cause for future problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, HONEYWELL INTERNATIONAL INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.

UTX ChartUTX data by YCharts
2. 
United Technologies Corporation (UTX)
Rating: A

Market Cap: $107 billion
Year-to-date return: 2.3%

United Technologies Corporation provides technology products and services to building systems and aerospace industries worldwide.

"We rate UNITED TECHNOLOGIES CORP (UTX) 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 impressive record of earnings per share growth, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. 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:

  • UNITED TECHNOLOGIES CORP has improved earnings per share by 19.7% 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, UNITED TECHNOLOGIES CORP increased its bottom line by earning $6.82 versus $6.22 in the prior year. This year, the market expects an improvement in earnings ($7.00 versus $6.82).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Aerospace & Defense industry average. The net income increased by 17.6% when compared to the same quarter one year prior, going from $1,213.00 million to $1,426.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that UTX's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, UNITED TECHNOLOGIES CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • UTX, with its decline in revenue, slightly underperformed the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

COL ChartCOL data by YCharts
1. 
Rockwell Collins, Inc. (COL)
Rating: A+

Market Cap: $12.9 billion
Year-to-date return: 14.7%

Rockwell Collins, Inc. designs, produces, and supports communications and aviation systems for commercial and military customers worldwide. The company operates through three segments: Commercial Systems, Government Systems, and Information Management Services.

"We rate ROCKWELL COLLINS INC (COL) 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, solid stock price performance, increase in net income, good cash flow from operations and growth in earnings per share. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • COL's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 6.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Aerospace & Defense industry average. The net income increased by 6.1% when compared to the same quarter one year prior, going from $148.00 million to $157.00 million.
  • Net operating cash flow has significantly increased by 77.22% to $179.00 million when compared to the same quarter last year. In addition, ROCKWELL COLLINS INC has also vastly surpassed the industry average cash flow growth rate of -47.22%.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, ROCKWELL COLLINS INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
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