With the first claimed use of a hypersonic weapon by Russia in the invasion of Ukraine, attention is again focusing on defense contractors in the U.S. that are trying to develop their own.
Among U.S. defense contractors notable for their efforts are Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTX). The three were picked by the U.S. Missile Defense Agency last November to develop an "accelerated concept design of the Glide Phase Interceptor," to stop incoming vehicles.
Lockheed Martin and Raytheon are also working on so-called scramjet hypersonic power systems, while Northrup Grumman is developing motors.
Just prior to the Russian invasion of Ukraine, Real Money Columnist Stephen "Sarge" Guilfoyle discussed Lockheed Martin and Northrop Grumman as two key defense stock plays in connection with hypersonic weapons systems. Such missiles can travel at speeds of up to ten times the speed of sound.
"Both China and Russia are ahead of the U.S. on this relatively new, and quite indefensible method of warhead delivery," Guilfoyle wrote. "When it comes to hypersonic delivery, the U.S. is quite possibly the 'near-peer.'"
Lockheed and Northrup are “almost always present in varying size among my portfolio holdings,” Guilfoyle wrote. He noted that both were on a JPMorgan Chase list of potential outperformers if the situation between Russia and Ukraine worsened.
Lockheed Martin is well-known for its very expensive F-35 fighter aircraft and operates four business segments: aeronautics, missiles and fire control, rotary and mission, and space.
“The recent focus, with mixed success, has been on the development of both offensive and defensive hypersonic weapons,” Guilfoyle wrote.
“Lockheed is expected to earn a rough $26.60 per share for FY 2022 on revenue of more than $66.15B. The stock trades at 14 times forward looking earnings, and yields 2.9%,” he noted.
Hypersonic development is one of four areas identified by Lockheed as underpinning its longer-term growth forecast. "As we discussed in October, the four primary areas that underpin this longer-term growth forecast are programs of record, classified activities, hypersonics, and new business awards," the company said at the time of its January earnings release.
Guilfoyle’s target price for Lockheed Martin is $455.
Northrop, the developer of the B-21 Raider, a long range, stealth strategic bomber, also runs four business units: aeronautics systems, mission systems, defense systems, and space systems. The company has focused "on hypersonic weapons delivery in coordination with Raytheon Technologies to provide an alternative to Lockheed's approach," Guilfoyle noted.
The target price of Northrop Grumman is $490. The company is expected to generate $24.85 per share in FY 2022 on revenue of $36.6 billion and the e stock trades at 15 times forward looking earnings and yields 1.6%.
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