The aerospace-defense equipment industry remains supported by strategic M&A activity and resilient air-travel demand, although persistent supply-chain constraints pose risks. Recent acquisitions are expanding product offerings, capabilities and exposure to defense and aerospace markets, while rising passenger traffic is increasing aircraft utilization and supporting demand for replacement parts, avionics, engines and other components.
The Zacks-defined Aerospace-Defense Equipment industry is currently in the top 11% of the Zacks Industry Rank. Since it is ranked in the top half of the Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
Here, we recommend three defense equipment bigwigs with a favorable Zacks Rank that have robust short-term price upside potential. These are: HEICO Corp. HEI, ATI Inc. ATI and Teledyne Technologies Inc. TDY. Each of our picks currently carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our three picks year to date.
Image Source: Zacks Investment Research
HEICO Corp.
Zacks Rank #1 HEICO has been witnessing sustained demand for aftermarket replacement parts, repair services and specialty products, and its electronics portfolio is also growing, aided by recent acquisitions.
HEI maintains a strong presence across defense, space and select homeland security markets, while recent acquisitions broaden its portfolio. Organic growth remains healthy across both operating segments.
HEI’s expanded credit capacity and cash generation provide flexibility to pursue transactions while maintaining discipline on strategic fit, culture and price. Record backlog and requests for faster deliveries reinforce the near-term outlook.
HEICO has an expected revenue and earnings growth rate of 12.6% and 13.9%, respectively, for the next year (ending October 2027). The Zacks Consensus Estimate for the next year’s earnings has improved 5.2% over the last 60 days.
Robust Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 33.6% from the last closing price of $295.78. The brokerage target price is currently in the range of $305-$491. This indicates a maximum upside of 66% and no downside.
ATI Inc.
Zacks Rank #1 ATI has been benefiting from strong aerospace and defense demand supporting record backlog, richer mix and visibility under long-term agreements. Jet-engine and defense programs remain growth engines, while next-generation platforms and nickel and titanium capacity additions extend the runway.
ATI’s elevATIon operating model is lifting throughput, and the transformed AA&S segment is broadening margin and cash generation. Higher full-year earnings and free-cash-flow guidance reinforce the earnings base. ATI’s durable demand, capacity expansion and operating execution are other positives.
ATI has an expected revenue and earnings growth rate of 12.9% and 57.7%, respectively, for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 9.7% over the last 60 days.
Robust Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 29.2% from the last closing price of $189.19. The brokerage target price is currently in the range of $141-$270. This indicates a maximum upside of 42.7% and a downside of 25.5%.
Teledyne Technologies Inc.
Zacks Rank #2 Teledyne Technologies’ long-term growth prospects remain supported by rising global defense spending, increasing demand for advanced sensing and imaging technologies and healthy demand across marine, space and commercial aerospace end markets.
A record backlog of approximately $5 billion and a disciplined acquisition strategy provide solid revenue visibility and strengthen TDY’s technology portfolio. A steady recovery in commercial air travel is a positive.
Teledyne Technologies has an expected revenue and earnings growth rate of 7.4% and 12.3%, respectively, for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 0.5% over the last 60 days.
Robust Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 25.2% from the last closing price of $604.15. The brokerage target price is currently in the range of $640-$877. This indicates a maximum upside of 45.2% and no downside.
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ATI Inc. (ATI): Free Stock Analysis Report
Teledyne Technologies Incorporated (TDY): Free Stock Analysis Report
Heico Corporation (HEI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).