Monty Rakusen
Textron (NYSE:TXT) is a key aerospace and defense stock to watch going into earnings season, according to analysts at financial-services firm Goldman Sachs. The industrial conglomerate, whose aviation brands include Bell helicopters and Cessna, is rated Buy and is on the bank’s Conviction List.
Other Buy-rated stocks to watch are TransDigm Group (NYSE:TDG), Woodward (NASDAQ:WWD) and Leidos (NYSE:LDOS). Conversely, Mercury Systems (NASDAQ:MRCY) is rated as a Sell.
The major themes going into 2024 include strong demand for commercial aircraft, aftermarket services and business jets, Noah Poponak, analyst at Goldman, said in a January 16 report. The bank is more cautious about the defense industry amid budget discussions in Washington.
Textron (TXT): “The stock continues to price in concern that business jet demand will soften, but we believe book-to-bill will remain resilient, while new jet supply remains tight. Investor feedback to our Conviction List addition of Textron (TXT) included a lot of skepticism including around the initial 2024 guide, which suggests the bar is low.”
Transdigm (TDG): “We see upside to consensus estimates, as TransDigm (TDG) continues to deliver industry leading operational execution, on top of strength in aerospace aftermarket units and price. TransDigm (TDG) already has next fiscal year guidance, such that concern of initial conservatism is less of a factor vs others.”
Woodward (WWD): “Woodward (WWD) has also already provided next fiscal year guidance, and it looks very conservative to us, allowing the company room to beat and raise through the year. We estimate that aerospace and industrial inputs remained strong in the quarter, as new management continues to improve operational performance.”
Leidos (LDOS): “New management at Leidos (LDOS) is driving operational improvement, on top of a very strong recent new order win rate. We expect that to translate to revenue and margin upside compared to consensus expectations, while valuation remains at a discount to the peer group.”
Mercury (MRCY): “Full-year guidance and consensus estimates at Mercury (MRCY) embed a quick turnaround in financial performance, while we see risk that takes longer or will settle out at lower levels.”