Elias Stein
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Defense stocks took a surprising blow after a proposed defense budget was released last week. The Biden administration asked Congress for $773 billion to fund defense for fiscal year 2023, up about 4% over 2022. But the procurement number came in relatively flat, says Vertical Research Partners analyst Rob Stallard, and forecasted spending growth through 2027 slowed. On the week, a basket of defense stocks, including
Lockheed Martin and
Northrop Grumman, fell about 1.3%, while the
S&P 500
rose 0.1%.
Still, defense stocks are up about 15% in 2022, handily beating the broader market. The stocks had been lifted by the Ukraine war, as well as by low initial valuations. Large defense stocks traded for about 15 times estimated 2022 earnings per share as the year began, and now go for some 18 times, versus the S&P 500’s 20 times.
A proposal, of course, isn’t the final budget. UBS analyst Myles Walton notes that Republicans are pushing for more spending but that the proposal was in line with his expectations. Nuclear and shipbuilding programs, he says, “came out on top.” The shipbuilding request is for $28 billion compared with $26.6 billion in 2022. The nuclear triad—the ability to launch nuclear weapons from land, sea, and air—got $15.9 billion, up from $11 billion in 2022.
In theory, the budget should help shipbuilder
Huntington Ingalls Industries and Northrop. The most popular defense stock is
Raytheon Technologies, which more than 80% of analysts rate a Buy, though it was down 2.2% on the week. Lockheed, Northrop, Huntington, and
General Dynamics got Buy ratios of 36%, 47%, 31%, and 68%, respectively. And who knows what crisis may strike next.
Next Week
Monday 4/4
The Census Bureau reports on new factory orders for February. Consensus estimate is that new orders for manufactured durable and nondurable goods will increase 0.5% month over month to a seasonally adjusted $548 billion. In January, factory orders increased 1.4%; new orders for durable goods jumped 1.6%, to $278 billion; and nondurable goods gained 1.2%, to $267 billion.
Broadcom hosts its annual meeting of shareholders.
Tuesday 4/5
The Institute for Supply Management releases its Services Purchasing Managers’ Index for March. Economists forecast a 58 reading, 1.5 points more than the February figure.
Quanta Services hold their annual investor days.
Merck holds an investor event in conjunction with the American College of Cardiology’s 71st Annual Scientific Session & Expo, which runs from April 2 through the April 4 in Washington, D.C. The company will discuss its portfolio and pipeline of cardiovascular drugs.
The Reserve Bank of Australia announces its monetary-policy decision. The central bank is expected to keep its cash target rate unchanged at 0.1%, the same level it has been since November 2020.
The Bureau of Economic Analysis reports light-vehicle sales. Auto makers are projected to have sold 13.9 million vehicles at a seasonally adjusted annual rate in March. This would be down 21% from March of 2021 but a significant improvement from the second half of last year as supply-chain issues ease.
Wednesday 4/6
Costco Wholesale reports sales data for March.
The Federal Open Market Committee releases minutes from its mid-March monetary-policy meeting. The FOMC raised the federal-funds rate a quarter point at the meeting to 0.25% to 0.5%, the first interest rate hike since December 2018.
Thursday 4/7
Constellation Brands, and
Lamb Weston Holdings report quarterly results.
Accenture hosts its 2022 investor and analyst day virtually.
The Department of Labor reports initial jobless claims for the week ending on April 2. Jobless claims averaged 208,500 in March and recently hit a five-decade low as job openings continue to outpace job seekers.
The Federal Reserve reports on consumer credit data. Consensus estimate is for total consumer debt to increase at a seasonally adjusted annual rate of 2.7% to a record $4.46 trillion.
Friday 4/8
Carnival and
Discovery hold their annual shareholder meetings.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/ukraine-war-defense-stocks-51648850929?siteid=yhoof2&yptr=yahoo