The air defense system market is witnessing significant growth fueled by rising security needs and advancements in defense technology, with sea-based systems and efforts to counter evolving threats propelling its expansion.
Thus, investors could consider investing in top defense stocks Innovative Solutions and Support, Inc. (ISSC), BAE Systems plc (BAESY), and CPI Aerostructures, Inc. (CVU) to unlock profits.
Heightened global security challenges, including geopolitical tensions and terrorism, prompt nations to invest in bolstering their defense capabilities. Considering the ongoing geopolitical escalations, eighteen NATO members are set to meet the 2% defense spending target this year, a sharp increase from 2014, reflecting renewed pressure for fair burden sharing within the alliance.
Besides, in the United States, the Department of the Air Force FY 2024 budget request is $215.10 billion, showing a 4.5% increase year-over-year, prioritizing investments in advanced capabilities for integrated deterrence.
Owing to increased defense budgets, the global air defense system market is projected to expand from $36.93 billion in 2022 to reach $61.30 billion by 2032.
Furthermore, AI and robotics in the aerospace and defense market is growing due to rising military applications and investments, with major players innovating and collaborating to enhance operational efficiency and security against evolving threats.
This year, the global AI and Robotics in aerospace and defense market size is estimated at $31.90 billion and is expected to grow at a CAGR of 7.5% to reach $45.80 billion by 2029.
Considering these conducive trends, let’s examine the fundamentals of three Air/Defense Services stocks, starting with the third choice.
Stock #3: Innovative Solutions and Support, Inc. (ISSC)
ISSC specializes in designing and manufacturing flight guidance and cockpit display systems for aircraft globally. The company serves diverse clients, including commercial air transport carriers, government agencies, and original equipment manufacturers.
ISSC’s trailing-12-month EBIT margin of 22.32% is 132.2% higher than the industry average of 9.61%. Also, the stock’s trailing-12-month net income margin of 17.32% is 189.8% higher than the industry average of 5.98%.
During the fiscal first quarter, which ended December 31, 2023, ISSC’s net sales came in at $9.31 million, up 43% from a year-ago quarter. The company's operating income and net income grew 104.1% and 51.3% year-over-year to $1.62 million and $1.06 million, respectively. Moreover, its net income per common share rose 50% from the previous-year quarter to $0.06.
ISSC’s shares have surged 13.7% over the past nine months to close the last trading session at $8.15. It gained marginally intraday.
ISSC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Growth, Momentum, and Sentiment. Among the 72 stocks in the Air/Defense Services industry, it is ranked #15.
In addition to the POWR Ratings stated above, access ISSC’s Value, Stability, and Quality ratings here.
Stock #2: BAE Systems plc (BAESY)
Based in Farnborough, the United Kingdom, BAESY is a global leader in providing defense, aerospace, and security solutions. The company offers a diverse range of products and services to governments and commercial clients worldwide.
On February 2, 2024, BAESY acquired Malloy Aeronautics, a leading company in heavy lift drone and aeronautical technologies. This acquisition strengthens BAESY's capabilities in developing innovative unmanned aerial systems and advancing sustainable air vehicle solutions.
BAESY’s trailing-12-month gross profit margin of 63.12% is 106.9% higher than the industry average of 30.50%. Also, the stock’s trailing-12-month cash from operations of $4.86 billion is significantly higher than the industry average of $301.88 million.
In the six months, which ended June 30, 2023, BAESY's revenue grew 12.9% year-over-year to £11 billion ($13.82 billion). The company's operating profit and profit for the period increased 19.9% and 55.3% from the prior-year quarter to £1.23 billion ($1.55 billion) and £1.01 billion ($1.26 billion), respectively. Also, its EPS rose 61.9% from a year-ago quarter to 31.4p.
Street expects BAESY’s revenue to grow 11.3% year-over-year to $31.12 billion for the fiscal year ended December 2023.
The stock has gained 45% over the past year to close the last trading session at $62.26. It gained marginally intraday.
BAESY’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
BAESY has an A grade for Stability and a B for Value and Momentum. Within the same industry, it is ranked #12.
To access additional ratings for BAESY’s Growth, Sentiment, and Quality, click here.
Stock #1: CPI Aerostructures, Inc. (CVU)
CVU specializes in contract manufacturing of structural aircraft parts for both commercial and defense markets, providing Aerosystems and MRO services as well. Additionally, it serves as a subcontractor for defense and commercial contractors, including the United States Department of Defense.
On November 21, 2023, CVU received additional orders worth $4.40 million from Embraer S.A. for engine inlet assemblies for Phenom 300 business jets. These orders extend deliveries into 2024, showcasing CPI Aero's continued role in the program.
CVU’s trailing-12-month net income margin of 63.12% is 79.4% higher than the industry average of 5.94%. Also, its trailing-12-month ROTA of 15.65% is 222.2% higher than the industry average of 4.86%.
During the third quarter, which ended September 30, 2023, CVU’s revenue increased 1% from a year-ago quarter to $20.40 million. The company reported income from operations and net income of $1.17 million and $301.36 thousand, respectively. Its income per common share amounted to $0.02.
The stock has gained 12.2% over the past month to close the last trading session at $2.75.
CVU’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CVU has an A grade for Value and a B for Momentum and Sentiment. Within the same industry, it is ranked #12.
Click here for CVU’s additional Growth, Stability, and Quality ratings.
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BAESY shares were trading at $62.29 per share on Thursday afternoon, up $0.03 (+0.05%). Year-to-date, BAESY has gained 7.73%, versus a 5.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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