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Biden's FY22 DoD Budget Request Seeks 1.6% Hike: Stocks to Gain

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U.S. President Joe Biden submitted his first budget request in detail to Congress on May 28, outlining a plan for $6 trillion of federal spending in fiscal 2022 (FY22), which includes an investment option worth $715 billion for the Department of Defense (DoD). The proposal for DoD compared to the prior year’s enacted amount of $703.7 billion indicates a 1.6% increase.

Interestingly, this budget proposed the largest-ever research, development, test and evaluation request worth $112 billion, reflecting a 5.1% increase over fiscal 2021. This can be expected to encourage prominent U.S. defense bigwigs in innovating more advanced weapons, thereby enhancing their market value worldwide, in the coming years.  

Highlights of the Defense Budget

Biden’s FY22 budget reflects the shift in focus of the nation’s defense strategy away from the Middle East to address emerging threats from China and Russia. The Pentagon has requested investment worth $5.1 billion for its Pacific deterrence initiative to address threats posed by China.

The budget also includes a 2.7% pay raise for troops and civilian Defense Department employees. In addition, the DoD has requested funds worth $500 million to tackle COVID-19 and pandemic preparedness.

The latest release also reflected the President’s decision to withdraw all U.S. troops from Afghanistan prior to the beginning of FY 2022. Product wise, the DoD budget proposal has requested funding worth $52.4 billion for aircraft, $34.6 billion for Navy, $27.7 billion for nuclear modernization, $20.6 billion for space and space-based, $20.4 billion for missile defense and $12.3 billion for tactical ground vehicles and military tanks.

Stocks to Gain

Considering the aforementioned discussion, it is quite evident that the bullish defense budget proposed by the U.S. administration boosts growth prospects of the nation’s defense stocks, particularly those whose products are being offered substantial funding in this proposal. We are discussing four such stocks here. Each of these carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin LMT: Lockheed, the largest U.S. defense contractor, perhaps has been offered the highest funding for its product portfolio. Notably, the DoD has asked funding worth $12 billion to buy 85 of Lockheed’s F-35 Joint Strike Fighter, $1.7 billion for 9 CH-53K Stallion jets, $1 billion for AEGIS Ballistic Missile Defense System (BMD), $777 million for Patriot Advanced Capability Missile Segment Enhancement and $562 million for Terminal High Altitude Area Defense (THAAD) BMD. Its long-term earnings are expected to grow 4.6%.

The Boeing Company BA: For the aircraft section, Boeing’s products have secured most of the funding proposals, apart from Lockheed. Notably, the DoD has requested investment worth $2.5 billion for purchasing KC-46 Tanker replacements, $1.5 billion for 12 F-15EX jets and $825 million for 30 AH-64E Apache attack helicopters. The company currently has a long-term earnings growth estimate of 4%.

Northrop Grumman NOC: Being a prominent player in the missile market, Northrop’s products has been offered substantial funding in the FY22 budget request. Notably, the DoD has requested investment worth $3 billion for purchasing B-21 Long Range Strike Bomber and $2.6 billion for Ground Based Strategic Deterrent (GBSD). The company’s 2022 earnings are expected to be up 5.5%.

General Dynamics GD: For the Naval forces, General Dynamics’ products have secured a major portion of the funding proposals. Notably, the DoD has requested investment worth $5 billion for purchasing COLUMBIA Class Ballistic Missile submarine, General Dynamics being its primary contractor. The budget has also asked funding worth $6.9 billion for buying two Virginia class submarines and $1 billion for 70 M-1 Abrams Tank modifications. The company’s  long-term earnings are expected to increase 7.2%.

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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
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