Earnings season rolls along, and this time the Aerospace and Defense industry is up to bat. From Boeing (BA) to United Technologies (UTX), several of the big players have reported their latest quarterly results and many of them have surpassed analysts’ sales and earnings expectations. However, that alone isn’t enough to warrant a buy recommendation from me. So today let’s go over what I consider one of the strongest defense stocks out there, as well as four defense plays to avoid this earnings season.
My Top Defense Recommendation
Shares of Northrop Grumman Corporation (NOC) are rising today after the company’s fourth-quarter results walloped the consensus estimate. Earnings increased 5.86% to $506 million, or $2.48 per share, up from $478 million, or $2.12 per share in 4Q 2013. Adjusted EPS was $2.26, while sales were $6.1 billion.
Analysts were expecting earnings per share of $2.25 on $5.99 billion in sales, so Northrop Grumman posted a slights earnings and sales surprise.
For full-year 2014, the defense contractor reported that sales were $24 billion, while earnings totaled $2.1 billion, or $9.75 per share. That’s up from earnings of $2 billion, or $8.35 per share, in 2013. NOC also noted that its backlog at the end of 2014 was $38.2 billion, up from $37 billion at the end of 2013. The company was awarded $25 billion last year, and its book-to-bill was 104%.
The real highlight of the NOC’s report, though, was its 2015 guidance. The company expects earnings per share between $9.20 and $9.50, which is well above the consensus estimate for $9.11 per share. I consider NOC a B-rated Buy, but it could very well get upgraded to an A-rating once the latest results have been plugged into Portfolio Grader.
Four Defense Stocks to Steer Clear of
And while you take a closer look at NOC, here are four defense contractors that I don’t recommend for new money right now: