A Shift Could Be Coming In The Defense, Aerospace Sector

  • Carter Copeland of Barclays maintained a neutral stance on the defense sector, despite "heightened terrorism-related fears.""
  • Copeland downgraded shares of Lockheed Martin Corporation LMT to Underweight, and also downgraded shares of Raytheon Company RTN to Equal-Weight.
  • The analyst upgraded shares of General Dynamics Corporation GD to Overweight and named the company as his top pick in the sector.
  • Despite "heightened terrorism-related fears," macro-uncertainties and a high sector-wide valuation, Carter Copeland of Barclays maintained a neutral stance on the defense and aerospace sector in a note on Monday.

    As part of a sector-wide shift, the analyst downgraded shares of Lockheed Martin to Underweight from Equal-Weight, with a price target lowered to $210 from a previous $215. Shares of Raytheon were also downgraded to Equal-Weight from Overweight with an unchanged $125 price target.

    On the other hand, shares of General Dynamics were upgraded to Overweight from Equal-Weight with an unchanged $157 price target.

    Lockheed Martin: 2016/2017 Numbers ‘Still Need To Come Down'

    Copeland noted that despite downward revisions during its recent quarterly conference call, expectations for Lockheed Martin's performance in 2016 and 2017 still need to come down. The analyst stated that the company's new segments will likely feature a "lower multi-year profile" versus investor expectations.

    Copeland argued that while there still is "a lot to like" about Lockheed Martin, every stock "has a price where it just doesn't make sense to expect further outperformance" – and that price is here.

    Raytheon: Valuation Concerns

    Copeland argued that while he doesn't prefer to downgrade a stock based solely on valuation, his bullish thesis on Raytheon "has essentially played out." The analyst expanded that the stock has reached his price target and "not much has changed" from a fundamental perspective. As such, investors should wait for a better entry point.

    General Dynamics: Relative Laggard

    Finally, Copeland argued General Dynamics' Gulfstream segment is benefiting from delays at competitors. The analyst stated that for investors with patients, Gulfstream-related concerns are currently "overly discounted" at the current share price.

    'Shifting' Preferences

    Copeland noted his "shifting" preference in the group. General Dynamics is the analyst's top pick in the sector, followed by Northrop Grumman Corporation NOC, Raytheon Company, L-3 Communications Holdings, Inc. LLL, Lockheed Martin and Huntington Ingalls Industries Inc HII.

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    Posted In: Analyst ColorLong IdeasUpgradesDowngradesPrice TargetTop StoriesMarketsAnalyst RatingsTrading IdeasBarclaysCarter CopelanddefenseDefense And AerospaceGulfstream
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