U.S. Markets closed

ETFs in Focus on Aerospace and Defense Earnings

Zacks Equity Research

The first quarter reporting cycle is in full swing. This week five major players in the aerospace and defense space released their earnings for the quarter.


Boeing Company BA, United Technologies UTX, General Dynamics GD, Northrop Grumman NOC, and Lockheed Martin Corporation LMT all beat earnings estimates. However, revenue performance was mixed.


Owing to growing geopolitical risks involving Syria and North Korea, demand for defense products is increasing. Moreover, airlines have been spending extensively on renewals of their aircraft fleet worldwide. These factors are a positive for this industry and make investments in this sector an attractive option.


Earnings in Focus


Boeing Company reported first-quarter 2017 adjusted earnings of $2.01 per share, beating the Zacks Consensus Estimate of $1.91 and up over 15.5% from last year’s $1.74 per share. However, it failed to beat the consensus estimate on the revenue front. The company reported $20.98 billion in revenues for the quarter in discussion, missing the consensus estimate of $21.44 billion and down 7.3% from $22.63 billion a year ago. Shares closed 0.98% lower at market close on Wednesday, April 26, 2017, primarily due to the revenue miss (read: Boeing Beats Q1 Earnings Estimates, Misses on Revenues).


United Technologies reported first-quarter adjusted earnings per share of $1.48, beating the Zacks Consensus Estimate of $1.39 and up 0.7% from last year’s $1.47. The company reported $13.815 billion in revenues for the quarter, beating the consensus estimate of $13.316 billion and up roughly 3.4% from $13.357 billion a year ago. Its share price was up 1.14% at market close on Wednesday, April 26, 2017, due to the better-than-expected results (read: United Technologies Beats Q1 Earnings and Revenues).


General Dynamics reported first-quarter adjusted earnings of $2.48, beating the Zacks Consensus Estimate of $2.32 and up roughly 6% from last year’s $2.34. However, it failed to beat the consensus estimate on the revenue front. The company reported $7.441 billion in revenues for the quarter in discussion, missing the consensus estimate of $7.595 billion and down 3.65% from $7.724 billion a year ago. The share price closed 0.83% higher at market close on Wednesday, April 26, 2017, primarily due to the earnings beat (read: General Dynamics Beats on Q1 Earnings, Revenues Miss).


Northrop Grumman reported first-quarter adjusted earnings of $3.63 per share, beating Zacks the Consensus Estimate of $2.90 and up 31% from last year’s $2.77. Moreover, it also beat the consensus estimate on the revenue front. The company reported $6.27 billion in revenues for the quarter in discussion, beating the consensus estimate of $6.116 billion, and up roughly 5.3% from $5.956 billion a year ago. The share price remained relatively flat as it closed 0.03% lower at market close on Wednesday, April 26, 2017 (read: Northrop Grumman Tops Q1 Earnings & Sales Estimates).


Lockheed Martin reported first-quarter adjusted earnings of $3 per share, beating the Zacks Consensus Estimate of $2.76 and up roughly 16.3% from last year’s $2.58. However, revenues fell short of expectations. The company reported $11.057 billion in revenues for the quarter in discussion, missing the consensus estimate of $11.259 billion and down 5.5% from $11.702 billion a year ago. The share price closed 0.12% higher at market close on Wednesday, April 26, 2017, primarily due to the earnings beat (read: Lockheed Martin Tops Q1 Earnings, Misses on Sales).


We will now discuss a few ETFs with high exposure to the companies discussed.


iShares U.S. Aerospace & Defense ETF ITA


This fund seeks to provide an exposure to the aerospace and defense industry. It has AUM of $2.81 billion and charges a fee of 44 basis points a year. The fund has 9.51% exposure to Boeing, 8.84% to United Technologies, 7.6% to Lockheed Martin, 6.87% to General Dynamics, and 6.09% to Northrop Grumman (as of April 25, 2017). The fund returned 25.77% in the past one year and 9.63% in the year-to-date time frame (as of April 26, 2017). It closed 0.21% higher on April 26, 2017. It currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


SPDR S&P Aerospace & Defense ETF XAR


This fund has AUM of $595.8 million and charges a fee of 35 basis points a year. The fund has 3.98% exposure to United Technologies, 3.92% to Boeing, 3.89% to Northrop Grumman, 3.87% to General Dynamics, and 3.83% to Lockheed Martin (as of April 25, 2017). The fund returned 26.64% in the past one year and 9.14% in the year-to-date time frame (as of April 26, 2017). It closed 0.14% higher on April 26, 2017. It currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


PowerShares Aerospace & Defense Portfolio ETF PPA


This fund has AUM of $565.7 million and charges a fee of 64 basis points a year. The fund has 6.90% exposure to United Technologies, 6.88% to Boeing, 6.88% to General Dynamics, and 6.68% to Lockheed Martin, and 5.25% to Northrop Grumman (as of April 25, 2017). The fund returned 14.02% in the past one year and 7.55% in the year-to-date time frame (as of April 26, 2017). It closed 0.07% higher on April 26, 2017. It currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


To Conclude


We believe the current market scenario presents a strong case for investing in the aerospace and defense industry. Growing demand for the products and better-than-expected results make these companies an attractive investment option.


Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Northrop Grumman Corporation (NOC): Free Stock Analysis Report
 
Boeing Company (The) (BA): Free Stock Analysis Report
 
General Dynamics Corporation (GD): Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT): Free Stock Analysis Report
 
United Technologies Corporation (UTX): Free Stock Analysis Report
 
ISHARS-US AEROS (ITA): ETF Research Reports
 
SPDR-SP AER&DEF (XAR): ETF Research Reports
 
PWRSH-AERO&DEF (PPA): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report