8 Small-Cap Aerospace and Defense Stocks to Sell Now

NEW YORK ( TheStreet) -- With a big new spending bill slated for passage it could be a good time to lock and load defense stocks into your portfolio -- but knowing which will fortify your holdings and which will leave you vulnerable to setbacks is key.

"With the pinch of the Budget Control Act slated to ease, and both the White House and Congress bickering about how to spend more money on defense and not whether to spend more money on defense, we continue to see the sector in the early days of a modest positive budget inflection," Deutsche Bank  (DB) analysts wrote in a May 21 research note.

The House passed a $612-billion military spending bill earlier this month, a controversial measure that President Obama has threatened to veto, according to the New York Times. The Senate has voted on its own version of military spending legislation. The two measures need to be reconciled, which could happen this summer, the article said.

"Quarter to date, defense names have underperformed the market by 7% as 1Q results weren't enough to keep 'hide-out' investors interested, the bond proxy trade lost steam as rates ticked up, and a seemingly continuation of the budgetary dysfunction in DC (despite glimmers of hope earlier in the year)," the Deutsche Bank note said. "We see that relative pull back as an opportunity given our view that this is the early days of a positive budgetary inflection" with the investment bank's top picks being Northrop Grumman (NOC), General Dynamics (GD), Huntington Ingalls Industries (HII) and L-3 Communications (LLL).

But not all defense stocks are a buy. The stocks on this list are all small-cap companies, rated "Sell" by TheStreet Ratings. Check out which companies made the list. And when you're done be sure to check out the best defense stocks to buy.

TheStreet Ratings, TheStreet's proprietary ratings tool, 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.

Note: Year-to-date returns are based on May 22, 2015 closing prices.

ASTC Chart ASTC data by YCharts

1. Astrotech Corp. (ASTC)
Market Cap: $57.6 million
Year-to-date return: 18.5%
Rating: Sell, D+

Astrotech Corporation develops, manufactures, and sells ultra-small mass spectrometers and related equipment for government agencies, research organizations, and universities. The company through utilizing microgravity as a research platform also develops novel therapeutic products.

TheStreet said: "We rate ASTROTECH CORP (ASTC) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, disappointing return on equity and weak operating cash flow."

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

  • ASTROTECH CORP's earnings per share declined by 37.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, ASTROTECH CORP reported poor results of -$0.32 versus -$0.01 in the prior year.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Aerospace & Defense industry and the overall market, ASTROTECH CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$2.59 million or 203.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ASTC, with its very weak revenue results, has greatly underperformed against the industry average of 3.4%. Since the same quarter one year prior, revenues plummeted by 95.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

 

 

 

 

CVU Chart CVU data by YCharts

2. CPI Aerostructures (CVU)
Market Cap: $97.5 million
Year-to-date return: 11.7%
Rating: Sell, D+

CPI Aerostructures, Inc. engages in the contract production of structural aircraft parts for fixed wing aircraft and helicopters in the commercial and defense aerospace markets.

TheStreet said: "We rate CPI AEROSTRUCTURES INC (CVU) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 46.3% when compared to the same quarter one year ago, falling from $1.73 million to $0.93 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Aerospace & Defense industry and the overall market, CPI AEROSTRUCTURES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CPI AEROSTRUCTURES INC is rather low; currently it is at 18.12%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.66% trails that of the industry average.
  • The share price of CPI AEROSTRUCTURES INC has not done very well: it is down 9.45% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • CPI AEROSTRUCTURES INC's earnings per share declined by 45.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CPI AEROSTRUCTURES INC swung to a loss, reporting -$2.98 versus $0.92 in the prior year. This year, the market expects an improvement in earnings ($0.87 versus -$2.98).

 

ISSC Chart ISSC data by YCharts

3. Innovative Solutions and Support Inc. (ISSC)
Market Cap: $60.7 million
Year-to-date return: 13.2%
Rating: Sell, D+

Innovative Solutions and Support, Inc. a systems integrator, designs, manufactures, sells, and services flight guidance and cockpit display system.

TheStreet said: "We rate INNOVATIVE SOLTNS & SUPP INC (ISSC) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 146.4% when compared to the same quarter one year ago, falling from $0.78 million to -$0.36 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Aerospace & Defense industry and the overall market, INNOVATIVE SOLTNS & SUPP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for INNOVATIVE SOLTNS & SUPP INC is currently lower than what is desirable, coming in at 29.97%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.88% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 44.43%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 140.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • INNOVATIVE SOLTNS & SUPP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, INNOVATIVE SOLTNS & SUPP INC reported lower earnings of $0.02 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($0.14 versus $0.02).

 

 

 

KEYW Chart KEYW data by YCharts

4. KEYW Holding Corp. (KEYW)
Market Cap: $272 million
Year-to-date return: -30.3%
Rating: Sell, D+

The KEYW Holding Corporation, through its subsidiaries, provides mission-critical cybersecurity, cyber superiority, and geospatial intelligence solutions in the United States. The company operates through Government Solutions and Commercial Cyber Solutions segments.

TheStreet said: "We rate KEYW HOLDING CORP (KEYW) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and weak operating cash flow."

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

  • KEYW HOLDING CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, KEYW HOLDING CORP reported poor results of -$0.34 versus -$0.28 in the prior year. For the next year, the market is expecting a contraction of 11.8% in earnings (-$0.38 versus -$0.34).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 98.4% when compared to the same quarter one year ago, falling from -$3.08 million to -$6.10 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market, KEYW HOLDING CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for KEYW HOLDING CORP is currently lower than what is desirable, coming in at 33.49%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -8.51% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$5.15 million or 209.93% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

 

KTOS Chart KTOS data by YCharts

5. Kratos Defense & Security Solutions (KTOS)
Market Cap: $297.3 million
Year-to-date return: 11.2%
Rating: Sell, D+

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services primarily for the United States Government. The company operates through three segments, Kratos Government Solutions (KGS), Unmanned Systems, and Public Safety & Security (PSS).

TheStreet said: "We rate KEYW HOLDING CORP (KEYW) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and weak operating cash flow."

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

  • KEYW HOLDING CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, KEYW HOLDING CORP reported poor results of -$0.34 versus -$0.28 in the prior year. For the next year, the market is expecting a contraction of 11.8% in earnings (-$0.38 versus -$0.34).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 98.4% when compared to the same quarter one year ago, falling from -$3.08 million to -$6.10 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market, KEYW HOLDING CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for KEYW HOLDING CORP is currently lower than what is desirable, coming in at 33.49%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -8.51% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$5.15 million or 209.93% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

 

 

 

LMIA Chart LMIA data by YCharts

6. LMI Aeropsace Inc. (LMIA)
Market Cap: $131 million
Year-to-date return: -27.8%
Rating: Sell, D+

LMI Aerospace Inc. provides structural assemblies, kits and components, and design engineering services to the aerospace and defense markets in the United States.

TheStreet said: "We rate LMI AEROSPACE INC (LMIA) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 231.4% when compared to the same quarter one year ago, falling from -$0.44 million to -$1.47 million.
  • The gross profit margin for LMI AEROSPACE INC is rather low; currently it is at 23.91%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.58% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$9.28 million or 192.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio is very high at 2.38 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, LMIA's quick ratio is somewhat strong at 1.37, demonstrating the ability to handle short-term liquidity needs.
  • The share price of LMI AEROSPACE INC has not done very well: it is down 23.60% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

 

EAC Chart EAC data by YCharts

7. Erickson Inc. (EAC)
Market Cap: $49.1 million
Year-to-date return: -57.4%
Rating: Sell, D

Erickson Incorporated provides aviation services to commercial and government customers. The company's fleet supports a range of aerial services, including critical supply and logistics for deployed military forces, humanitarian relief, firefighting, timber harvesting, infrastructure construction, and crewing. It also manufactures aircranes and related components; and provides other aftermarket support services, as well as maintenance, repair, and overhaul services for the aircrane and other aircraft. In addition, the company leases aircrafts for specific missions. As of December 31, 2014, it operated a fleet of 86 rotary-wing and fixed wing aircraft, including a fleet of 20 heavy-lift Erickson S-64 aircranes. The company was formerly known as Erickson Air-Crane Incorporated and changed its name to Erickson Incorporated in April 2014. Erickson Incorporated is headquartered in Portland, Oregon.

TheStreet said: "We rate ERICKSON INC (EAC) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and weak operating cash flow."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 887.2% when compared to the same quarter one year ago, falling from -$7.59 million to -$74.97 million.
  • The debt-to-equity ratio is very high at 4.73 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, EAC maintains a poor quick ratio of 0.99, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Aerospace & Defense industry and the overall market, ERICKSON INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ERICKSON INC is rather low; currently it is at 15.40%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -113.31% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$7.74 million or 410.38% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

 

 

ATNY Chart ATNY data by YCharts

8. API Technologies Corp. (ATNY)
Market Cap: $119 million
Year-to-date return: 0.47%
Rating: Sell, D

API Technologies Corp., together with its subsidiaries, designs, develops, and manufactures systems, subsystems, modules, and components for radio frequency (RF) microwave, millimeterwave, electromagnetic, power, and security applications.

TheStreet said: "We rate API TECHNOLOGIES CORP (ATNY) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, poor profit margins, generally disappointing historical performance in the stock itself and deteriorating net income."

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

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Aerospace & Defense industry and the overall market, API TECHNOLOGIES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $0.66 million or 73.34% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The gross profit margin for API TECHNOLOGIES CORP is currently lower than what is desirable, coming in at 32.35%. Regardless of ATNY's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ATNY's net profit margin of -4.28% significantly underperformed when compared to the industry average.
  • ATNY has underperformed the S&P 500 Index, declining 20.16% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Aerospace & Defense industry average. The net income has decreased by 2.6% when compared to the same quarter one year ago, dropping from -$2.12 million to -$2.18 million.

 

 

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