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4 Defense Stocks to Watch on Raytheon-United Technologies Merger

William Roth

Wall Street is trading around the unchanged line on Wednesday, bouncing between gains and losses, as all eyes focus on the recent announcement of a $120 billion all-stock merger of equals between United Technologies (NYSE:UTX) and Raytheon (NYSE:RTN).

Defense and aerospace stocks have been holding up well since President Donald Trump took office, as represented by the iShares Aerospace and Defense ETF (BATS:ITA), despite problems at Boeing (NYSE:BA) related to the 737 MAX. This is thanks to a big investment in the Pentagon’s budget by the Trump Administration.

With geopolitical tensions high between the United States and China as well as Iran, this spending isn’t likely to slow anytime soon. Industry consolidation, of the type represented by the UTX-TRN tie up, will bolster profitability. With defensive sectors of the market enjoying a bid in recent weeks, amid broad volatility, this provides yet another reason for investors to consider names in this area.

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Here are four defense stocks to watch:


United Technologies (UTX)

Shares of United Technologies are rebounding slightly after a sharp decline below their 200-day moving average, testing critical support from the March lows. The company has been going through a metamorphosis, announcing last fall that it would spin off its Otis elevator and Carrier HVAC businesses early next year, segments that will not be included in its merger of its aerospace business with Raytheon.

Of note is that its Pratt & Whitney engine segment was combined with Collins Aerospace Systems last fall via what was one of the largest aerospace acquisitions in history. The company will next report results on July 23 before the bell. Analysts are looking for earnings of $2.04 per share on revenues of $19.3 billion. When the company last reported on April 23, earnings of $1.91 beat estimates by 19 cents on a 20.5% rise in revenues.


Raytheon (RTN)

Shares of Raytheon, maker of missile and radar systems, are finding support near the lower end of its five-month consolidation range. The proposed tie-up with UTX is seen as a big positive for RTN, diversifying its exposure into the strong commercial aerospace market as well as giving it more leverage with suppliers to negotiate lower prices through economies of scale.

The company will next report results on July 25 before the bell. Analysts are looking for earnings of $2.64 per share on revenues of $7 billion. When the company last reported on April 25, earnings of $2.77 per share beat estimates by 29 cents on a 7.4% rise in revenues.


Aerojet Rocketdyne Holdings (AJRD)

Shares of Aerojet Rocketdyne Holdings (NYSE:AJRD) are taking flight, pushing back towards prior highs hit in February to mark a 25%-plus rally off of its April lows. Earlier this week, CL King’s George Godfrey suggested the company could be a logical acquisition for Boeing or Lockheed Martin (NYSE:LMT) following the United Technologies-Raytheon deal. Back in March, the company acquired a 3D printing subsidiary from ARC Group Worldwide (NASDAQ:ARCW).

The company will next report results on July 29 after the close. Analysts are looking for earnings of 39 cents per share on revenues of $483.4 million. When the company last reported on April 30, earnings of 44 cents per share beat estimates by 19 cents on a 0.1% decline in revenues.


Northrop Grumman (NOC)

Shares of Northrop Grumman (NYSE:NOC) are cooling their heels a little after a run to challenge priors highs set last September, marking a nice 23% rally off of the late March lows. The last time the 50-day moving average pulled away from the 200-day average like it is now was back in 2013, marking a 6x increase in the share price until a bout of profit taking struck in early 2018.

The company will next report results on July 24 before the bell. Analysts are looking for earnings of $4.65 per share on revenues of $8.4 billion. When the company last reported on April 24, earnings of $5.06 beat estimates by 46 cents on a 21.6% rise in revenues.

As of this writing, William Roth did not hold a position in any of the aforementioned securities.

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