These Top Defense Stocks Have Been Tipped To Go Hypersonic
Defense giants Lockheed Martin (LMT), Raytheon (RTN), Northrop Grumman (NOC) and Boeing (BA), as well as Kratos (KTOS) and Aerojet Rocketdyne (AJRD), have all been tipped to benefit from the emergence of hypersonic weapons by a Wall Street analyst.
Analysts believe that hypersonic weapons have the potential to be the most disruptive battlefield technology since the advent of stealth. According to JPMorgan Vice President Seth Seifman, their importance has “grown substantially” due to aggressive investment by U.S. rivals China and Russia.
Budget dollars pouring into hypersonic weapons should soar from around $ 400 million in fiscal 2018 to $ 1.5 billion fiscal 2019, he estimated, adding that while sales are still modest, they should shoot up to more than $ 5 billion by the mid-2020s and “perhaps significantly more.”
Seifman said Lockheed set itself up for early wins due to its work on the Defense Advanced Research Projects Agency’s hypersonic weapons efforts, such as the Tactical Boost Glide program.
Earlier this year, the Air Force also awarded the company work on the Hypersonic Conventional Strike Weapon under a contract valued at $ 928 million. This was followed by a successful bid to develop the Air-Launched Rapid Response Weapon. The value of this contract is not to exceed $ 480 million.
“There are many players vying for roles in this nascent field but Lockheed is positioned well for both offensive and defensive requirements,” Seifman said in a research note.
Lockheed stock dipped 0.2% to 342.89, continuing a consolidation. Itis working toward a buy point of 363.10.
Raytheon has been keeping its cards close to its chest on its hypersonic weapons capabilities, making few public announcements. However, it has stepped up to challenge early leader Lockheed in DARPA’s HAWC (Hypersonic Air-breathing Weapon Concept) competition.
Seifman also believes the firm is working with the Defense Department to develop a sea-launched boost-glide capability for the Navy.
“Overall, Raytheon’s position as a premier missile manufacturer means it is likely to play a meaningful role in developing a hypersonic arsenal for the US,” the analyst said. “Its research on directed energy and position in missile defense makes it a viable player on the defensive side.”
Raytheon stock rose 7 cents to 205.25, working on a consolidation with a 229.85 buy point. It finally managed to retake its 200-day line this week.
Northrop has subcontractor opportunities in hypersonic weapons on both the offensive and defensive sides, especially after its acquisition of Orbital ATK.
According to Seifman, Northrop may be a key propulsion technology supplier in hypersonic weapons. This is due to Orbital’s role as an important supplier to the legacy missile businesses of fellow defense stocks Lockheed and Raytheon.
Meanwhile, as U.S. adversaries ramp up their hypersonic capabilities, the Pentagon must find countermeasures, including a detection system.
And the legacy warning satellites business Northrop acquired with its Orbital purchase could open up another opportunity.
“Legacy Northrop manufactures space-based early warning satellites/payloads and the combination of Orbital’s small sat business with NOC’s history in large satellites may be attractive to the DoD,” Seifman said.
Northrop stock has been consolidating for the past 25 weeks, but is stuck below its 200-day line. Shares rose 13 cents to 314.54 on Wednesday, still a good distance from a 360.98 buy point.
Boeing is in a unique position among aerospace and defense stocks due to its own technological developments. This has given the company access to a range of opportunities.
“We believe Boeing is investing in hypersonic technologies that could be used not only in missiles but also military and commercial aircraft,” Seifman said.
He cited the firm’s Phantom Express, a DARPA spaceplane initiative that aims to travel at hypersonic speeds. The analyst sees potential for this technology to be used in next-generation commercial travel.
Boeing stock dipped 0.6% to 365.03, still in a buy zone from a 35-day flat-base entry of 364.64.
Other Hypersonic Weapons Stocks
Kratos could have a role testing hypersonic missiles, while its Rocket Support unit could also be important, according to Seifman.
Shares are in buy range after breaking out from a 52-week consolidation. The correct entry is 14.03.
Meanwhile, Aerojet Rocketdyne is seen fighting it out with Northrop for engine and propulsion needs.
Aerojet stock has been building a flat base for the past seven weeks, however its relative strength line is on a downward trend. It is trying to reach a 37.80 buy point. But shares fell 3% to 33.32 on Wednesday.
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