The Zacks Analyst Blog Highlights: Lockheed Martin, General Dynamics, Raytheon, Northrop Grumman and AK Steel Holding
CHICAGO, Sept. 24, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Lockheed Martin Corporation (NYSE:LMT-Free Report), General Dynamics Corporation (NYSE:GD-Free Report), Raytheon Company (NYSE:RTN-Free Report), Northrop Grumman Corporation (NYSE:NOC-Free Report) and AK Steel Holding Corporation (NYSE:AKS-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Tuesday's Analyst Blog:
U.S., Allies Strike ISIS: 3 Defense Stock to Buy Now
The U.S., along with five Arab countries, initiated airstrikes Monday night against the Islamic State of Iraq and Syria (ISIS). The strikes specifically targeted ISIS groups in Syria and escalated a military campaign in a country where a civil war, which is now in its third year, has provided the militant group with a secure base of operations.
Widening Military Operations
Fighter aircraft, including bombers as well as Tomahawk cruise missiles, were used in the strikes. This is part of the widened military campaign authorized by President Obama around two weeks ago. The objective of these strikes is to throw into disarray and eliminate militants of the Islamic State.
These militants have killed thousands of individuals and beheaded several people from Western nations. This includes a British aid worker and two journalists from the U.S. ISIS has also gained possession of large portions of Syria as well as significant territory in northern and western Iraq.
Defense Stocks Gain
Defense contractors have gained steady ever since the ISIS conflict began featuring prominently in the news. These stocks have exceeded the performance of the broader market by a wide margin and some of them have touched all-time highs. Lockheed Martin Corporation (NYSE:LMT-Free Report), General Dynamics Corporation (NYSE:GD-Free Report), Raytheon Company (NYSE:RTN-Free Report) and Northrop Grumman Corporation (NYSE:NOC-Free Report) achieved record highs on Friday. They have also exceeded the S&P 500's performance by a wide margin since August.
Additionally, several Republican lawmakers have recently said that some of the planned reductions to the budget of the Department of Defense may have to be reversed. These cuts are a result of sequestration, intended to forcibly reduce federal government expenditure.
Will Gains Continue?
Some market watchers are of the view that an increase in the military budget has already been priced in by the market. Taking into consideration the gains in stocks over the last two months, stocks may not rise further. Additionally, there is some skepticism that a conflict with ISIS may not cost the U.S. anything close to what was spent on the second Gulf War.
However, the defense industry usually gains during any conflict. This is borne out by the performance of stocks during the first Gulf War as well as the conflict with the Taliban in Afghanistan following the 9/11 attacks.
Additionally, defense stocks provide relatively higher dividends. Dividend yields for Northrop Grumman and Raytheon exceed 2% while yield for Lockheed Martin is nearly 3%.
Our Choices
Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank.
Lockheed Martin Corporation is the largest defense contractor in the world. The company's customer base includes the U.S. government, foreign governments, and other commercial buyers. The company operates through the following five businesses: Aeronautics, Information Systems & Global Solutions, Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems.
Lockheed Martin holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 3.1%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 15.94.
General Dynamics Corporation engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology (IS&T), Combat Systems, Marine Systems and Aerospace.
The company currently holds a Zacks Rank #2 (Buy) and has expected earnings growth of 7.1%. It has a P/E (F1) of 17.01x.
Northrop Grumman Corporation supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services. Currently, the company operates under four reporting segments. The company is based out of Falls Church, VA.
Apart from a Zacks Rank #2 (Buy), Northrop Grumman Partners has expected earnings growth of 19.3%. It has a P/E (F1) of 14.03x.
It is likely that the conflict with ISIS will continue for a while. Such a campaign is likely to provide impetus for defense stocks in the days and weeks ahead. These stocks would make excellent additions to your portfolio.
AK Steel Poised for Growth on Auto Strength, Dearborn Buy
On Sep 17, we issued an updated research report on AK Steel Holding Corporation (NYSE:AKS-Free Report). While the steel maker should benefit from strong upward momentum in the automotive market and the recent acquisition of Severstal Dearborn, it is expected to face challenges in the third quarter.
AK Steel posted a narrower loss in second-quarter 2014 on a reported basis on Jul 29. Adjusted earnings beat the Zacks Consensus Estimate. Sales rose on higher shipments and topped expectations.
AK Steel, a Zacks Rank #3 (Hold) stock, is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. The company gets more than half of its revenues from this market which continues to show strong momentum.
AK Steel's automotive shipments were at their highest level in seven years in the second quarter. The company is expected to continue to gain automotive market share and should witness solid demand for its carbon and stainless steel products from its automotive customers in the remainder of 2014.
Moreover, the recent acquisition of the Severstal Dearborn plant is expected to boost AK Steel's future earnings and improve its credit profile and liquidity. The buyout has provided the company an access to highly modernized and upgraded steelmaking equipment and facilities. With the acquisition, AK Steel now expects its annual shipments to exceed 7.5 million tons. The company also envisions costs synergies of around $50 million with roughly $25 million expected to be realized in 2015.
AK Steel is also investing to procure about half of its iron ore and coal requirements internally. It is making good progress with its first coal mine at AK Coal and is ramping up mining volumes. AK Steel is also making a significant progress with its iron ore pellet project at Magnetation. Both these strategic investments are expected to improve AK Steel's cost structure and strengthen its position in the years ahead.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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