The defense sector looks well-positioned for future expansion thanks to its capacity for innovation and adaptation under challenging circumstances. So, it could be wise to buy quality defense stock MSA Safety Incorporated (MSA). However, considering the weak fundamentals of The Boeing Company (BA), it could be wise to wait for a better entry point.
According to the Aerospace & Defense Global Market Report 2022, the A&D market is expected to reach $1.05 trillion in 2026 at a CAGR of 8.5%. The industry is experiencing more focus on new technologies and, evolving business models and the push for more digital and operational efficiencies.
The air defense system market is expected to increase at a CAGR of 7% until 2032, owing to the rising industrial and manufacturing sectors. The growing worldwide air traffic and the developing commercial aviation industry have raised the need to protect airspace from potential threats.
The global digital aviation market is expected to reach $65.11 billion by 2029, growing at an 8% CAGR. Aviation digital technologies offer effective flight operations, maintenance, and data computers, resulting in least risk and maximum efficiency.
Investors’ interest in defense stocks is evident from the SPDR S&P Aerospace & Defense ETF’s (XAR) 8% returns over the past three months.
Let’s examine the stocks mentioned above in detail.
Stock to Buy:
MSA Safety Incorporated (MSA)
MSA is an international developer, manufacturer, and supplier of safety products and software that protect people and facility infrastructures in the oil, gas, petrochemical, fire service, construction, industrial manufacturing applications, heating, ventilation, air conditioning and refrigeration, utilities, military, and mining industries.
MSA’s trailing-12-month EBIT margin of 22.20% is 125.7% higher than the industry average of 9.83%. Its trailing-12-month gross profit margin of 45.61% is 50.4% higher than the industry average of 30.33%.
For the fiscal second quarter ended June 30, 2023, MSA’s net sales rose 20.1% year-over-year to $447.30 million. Its operating income increased 54.4% over the prior-year quarter to $95.01 million. The company’s net income increased 40.7% year-over-year to $67.09 million. Its EPS came in at $1.70, representing an increase of 40.5% year-over-year.
The consensus revenue estimate of $1.71 billion for the year ending December 2023 represents a 12.2% increase year-over-year. Its EPS is expected to grow 6.8% year-over-year to $6.50 for the same period. It surpassed EPS estimates in all four trailing quarters. MSA’s shares have gained 41% over the past year to close the last trading session at $180.05.
MSA’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
MSA has a B grade for Growth, Sentiment, Momentum, and Quality. Within the Air/Defense Services industry, it is ranked #18. To see additional MSA’s ratings for Value and Stability, click here
Stock to Hold:
The Boeing Company (BA)
BA, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital.
BA’s trailing-12-month levered FCF margin of 12.69% is 132.3% higher than the 5.46% industry average, while its trailing-12-month EBITDA margin of 1.46% is 89.3% lower than the 13.62% industry average.
For the fiscal second quarter ended June 30, 2023, BA’s total revenues rose 18.4% year-over-year to $19.75 billion. Its sales of products increased 19.1% year-over-year to $16.69 million.
However, its net loss came in at $149 million. Also, its loss per share came in at $0.25.
Street expects BA’s revenue to increase 18.8% year-over-year to $79.10 billion for the year ending December 2023. Its EPS is expected to come in at negative $2.51 for the same period. Over the past year, the stock has gained 34.1% to close the last trading session at $227.06.
BA’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BA has a C grade for Growth, Value, Sentiment, and Quality. Within the same industry, it is ranked #51 out of 72 stocks. Click here for the additional POWR Ratings for Momentum, and Stability for BA.
What To Do Next?
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MSA shares were trading at $180.57 per share on Tuesday morning, up $0.52 (+0.29%). Year-to-date, MSA has gained 26.40%, versus a 17.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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