From 24/7 Wall St.:
The firm raised price targets on five defense firms Thursday morning, saying that what matters going forward is free cash flow. It’s not too much of a stretch for investors to read that to mean more returns in the form of dividends and share buybacks.
General Dynamics Corp. (NYSE:GD) was maintained at Outperform and the price target was raised from $157 to $172. As recently as late March, JPMorgan’s price target on the stock was $114. Based on Wednesday’s closing price of $152.29, the implied upside is 12.9%. The stock’s 52-week trading range is $121.61 to $153.80, and the consensus 12-month price target is $166.92 (likely not including the JPMorgan hike).
L-3 Communications Holdings Inc. (NYSE:LLL) was raised from Neutral to Outperform and Morgan’s price target was lifted from $158 to $182. The analysts have named L-3 as their top pick in the defense sector. At the most recent closing price of $146.78, the potential upside in the stock is 24% and the 52-week range is $101.13 to $154.50. The consensus 12-month target is $163.22.
Northrop Grumman Corp. (NYSE:NOC) was dropped from Overweight to Neutral Thursday morning, but the price target was lifted from $225 to $231. Shares closed previously at $213.10, yielding an implied gain of about 8.4%. The 12-month price target is $232.92 and the 52-week range is $158.84 to $224.12.
Raytheon Co. (NYSE:RTN) was maintained at Buy and the price target was raised from $145 to $165. At Wednesday’s closing price of $141.07, the potential upside is 17%. The 52-week range is $99.60 to $143.39.
Harris Corp. (NYSE:HRS) sports a Buy rating from the JPMorgan analysts, and the price target was lifted from $93 to $104. At Wednesday’s closing price of $91.02, the implied gain is 14.3%. The consensus 12-month target is $97.71 and the 52-week range is $70.10 to $91.99.
Investors looking for exposure to the aerospace/defense sector without the risk of owning individual names should consider the the iShares Dow Jones US Aerospace & Defense ETF (NYSE:ITA). One of only three ETFs targeting defense names, ITA is by far the largest of the group, with $876 million in assets under management.
ITA’s expense ratio of 0.43% puts it right in the middle of its group, while its top ten holdings include UTX, BA, LM, GD, RTN, NOC, TDG, LLL, ROC, and TXT.
ITA shares rose slightly in Friday morning trading to $131.95, and have gained 11.54% year-to-date.