Goldman Sachs Updates Views on Aerospace & Defense
Emmanuella Nwokenkwo & Jacques Potts
On Sunday, analysts at Goldman Sachs added buy rated Raytheon Technologies (RTX) and Boeing (BA) to the firm's Conviction List while removing Lockheed Martin (LMT) and L3Harris (though both remain Buy rated). The analysts believe that now is a good time to invest in aerospace stocks, as the U.S Department of Defense budget flattens.
In recent weeks, Boeing has been underperforming the broader S&P 500, XLI, and A&D, despite the market starting to rotate into value stocks as the economy re-opened. Boeing also reduced production rate by nearly 50%, which historically represents a buying opportunity, the analysts noting, "Historically, the best buying opportunities in BA shares are right after it has capitulated to production rate cuts."
Analysts indicated that developments on the 737 MAX, plus further positive second derivative in air travel have the potential to see progress and growth in the next few months.
The analysts are also optimistic on the outlook of Raytheon Technologies, raising their price target to $86 (from $84) and commenting that "Raytheon’s Defense business is positioned in key end market categories, and the strong trailing book to bill supports visible revenue growth going forward." The analysts further commented, "We see synergies as a key driver of margin expansion and cash generation and see upside potential to the guidance given historical synergy capture in the space”. Additionally, the analyst noted that the aftermarket view is the best sub-market within Aerospace over the long term, and currently makes up approximately 45% of RTX Aerospace revenue.
On the other hand, the analysts removed Lockheed Martin from their Conviction List, though they still believes that the stock is going to take up additional market share within the defense sector. The firm maintained their Buy rating, however, lowered the price target to $447 (from $501). the analysts see a promising future for the stock along with other booming Aerospace stocks.
“Lockheed’s new order bookings continue to outpace the industry on average, supporting further outgrowth ahead. LMT has multiple company-specific drivers to support growth: the F-35, its missile business, missile defense, hypersonics, all of the growing Sikorsky helicopter programs, and space”.
Disclosure: At the time of publication, we are long Boeing. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.