You might expect shareholders of Boeing to be suffering this year, in light of the tragedies and systems problems with the 737 MAX and investigations of the company and its product-approval process.
But the stock and the aerospace and defense subsector of the S&P 500 have both performed well, extending a winning streak.
In September, we showed how the S&P 500 aerospace and defense (A&D) subsector had outperformed the entire S&P 500 Index SPX, +0.96% over various periods. So far in 2019, the A&D subsector has returned 22% with dividends reinvested, while the index itself has returned 16%.
There are only 10 A&D stocks in the S&P 500, so what follows is a set of data for the 22 stocks in the S&P 1500 Aerospace and Defense subsector. The S&P 1500 includes the S&P 500, the S&P 400 Mid-Cap Index MID, +1.43% and the S&P Small-Cap 600 Index SML, +2.08% The expanded subsector has performed very well over long periods, as you can see in the tables and ETF performance lower down in this story.
Boeing — the elephant in the room
And what about Boeing BA, +0.18% ? Let a chart tell the tale:
Boeing’s shares have returned 17% so far in 2019. The stock was riding high — up as much as 37% — before it became clear how big a problem the company had with the 737 MAX. Still, it’s obvious there is tremendous support for the company. During the weeks before Ethiopia Air crash in March, there was a steady stream of large, new airplane orders being announced by the company.
So unless you purchased the shares in February, chances are that if you are a Boeing shareholder, you are at least satisfied with the stock’s performance. Looking ahead, it is obvious the company is bent on fixing the problems with the 737 MAX so it is no longer grounded. The company has had difficulty with new products before, although without the terrible tragedies of the two recent 737 MAX crashes. Remember all the headlines about battery fires and other problems with Boeing’s 787 Dreamliner? Those led to a grounding of that fleet by the Federal Aviation Administration in January 2013, with the airplanes returning to service in April.
Ultimately, the Dreamliner turned out to be game-changer for the industry, and for Boeing.
Looking ahead, support for Boeing on Wall Street is tremendous, with 18 of 25 sell-side analysts polled by FactSet rating the stock a “buy,” or the equivalent. All the other analysts have neutral ratings.
It wasn’t much of a surprise to see Boeing miss analysts’ first-quarter estimates for sales and earnings, and it did nothing to hurt the stock. In fact, investors were probably relieved when the company said it expected $1 billion in expenses tied to the investigation and correction of 737 MAX system problems that led to the plane crashes. One analyst even said he expected long-term upside of 50% for Boeing’s shares.
Boeing’s shares closed at $379.05 Monday. The shares were trading for 21.8 times the consensus earnings estimate for the next 12 reported months, according to FactSet. That is not cheap, when compared with 17.4 for the S&P 500 A&D subsector and 17 for the S&P 500. But in a world with limited competition in Boeing’s space and all the momentum from the continual increase in air travel, not to mention the decades of service contracts for the company’s products, the long-term thesis for the stock is intact.
For those with shorter horizons, the consensus price target for the stock is $442.82, implying 18% upside over the next 12 months.
The S&P 1500 A&D subsector
Along with the continuing boom times for commercial air travel as a whole, the significant increase in U.S. defense spending during Donald Trump’s presidency is a good sign for the U.S. aerospace and defense sector. What follows are three lists of all 22 stocks in the S&P 1500 A&D sector, sorted different ways.
First, here’s the group sorted by how much sales have increased over the past 12 reported months:
| Company | Ticker | Market cap ($millions) | Change in sales - past 12 months | Change in sales per share - past 12 months | Gross margin - past 12 months | Gross margin - year-earlier 12-month period |
| AeroVironment Inc. * | AVAV, +2.25% | 1,614 | 23% | 10% | 41.94% | 41.41% |
| Axon Enterprise Inc. * | AAXN, +1.62% | 3,799 | 22% | 13% | 61.56% | 60.13% |
| General Dynamics Corp. | GD, +1.21% | 50,428 | 22% | 25% | 16.25% | 20.01% |
| Northrop Grumman Corp. | NOC, +0.73% | 49,230 | 20% | 22% | 21.94% | 22.52% |
| Motorola Solutions Inc. * | MSI, +0.89% | 23,407 | 15% | 12% | 45.63% | 45.17% |
| AAR CORP. | AIR, +2.99% | 1,150 | 14% | 5% | 16.28% | 16.53% |
| Cubic Corp. * | CUB, +5.22% | 1,767 | 13% | -17% | 28.07% | 26.80% |
| ManTech International Corp. Class A | MANT, +1.33% | 1,696 | 12% | 24% | 14.19% | 14.75% |
| TransDigm Group Inc. * | TDG, -0.05% | 25,316 | 12% | 10% | 55.67% | 54.81% |
| Huntington Ingalls Industries Inc. | HII, +2.12% | 8,627 | 10% | 17% | 20.76% | 21.26% |
| L3 Technologies Inc. | LLL, +0.10% | 18,263 | 10% | 3% | 25.87% | 27.32% |
| ESCO Technologies Inc. * | ESE, +2.59% | 1,940 | 10% | 9% | 33.89% | 33.67% |
| Lockheed Martin Corp. | LMT, +0.46% | 94,048 | 9% | 10% | 13.99% | 12.64% |
| Teledyne Technologies Inc. | TDY, +1.94% | 8,855 | 8% | 6% | 38.44% | 38.10% |
| Moog Inc. Class A | MOG.A, +2.26% | 3,015 | 8% | 10% | 28.65% | 29.34% |
| Raytheon Co. | RTN, +1.28% | 49,548 | 7% | 9% | 27.62% | 27.75% |
| Triumph Group Inc. * | TGI, +2.31% | 1,164 | 7% | 7% | 8.12% | 14.34% |
| Curtiss-Wright Corp. * | CW, +1.12% | 4,906 | 6% | 7% | 36.12% | 38.73% |
| Boeing Company | BA, +0.18% | 211,436 | 5% | 10% | 19.22% | 18.87% |
| Kaman Corp. Class A | KAMN, +3.36% | 1,696 | 2% | 2% | 29.57% | 30.29% |
| FLIR Systems Inc. | FLIR, +1.46% | 7,059 | -3% | -3% | 51.63% | 48.30% |
| Aerojet Rocketdyne Holdings Inc. | AJRD, +1.84% | 2,865 | -3% | -9% | 16.00% | 12.24% |
| Source: FactSet | ||||||
You can click on the tickers for more about each company, including business profiles.
Note: As we’re still within earnings season, figures for the most recently completed fiscal quarters aren’t yet available from FactSet for the companies with asterisks after their names. The table will be updated as those results become available.
Changes in sales per share are also shown. This will exceed the raw sales-growth numbers if a company has been reducing its share count through buybacks. If sales per share are growing less rapidly than revenue (or declining more rapidly), it means the company’s shares have been diluted — additional shares have been issued to fund acquisitions, raise capital or for executives’ stock-based compensation packages.
Gross margins are also shown to give an idea of each company’s pricing environment. A company’s gross profit margin is its sales, less the cost of goods sold, divided by sales. It doesn’t reflect overhead costs, but ti can indicate whether or not a company is being forced to offer discounts to defend its market share. A widening margin when sales are growing is a good sign.
Here’s the group sorted by percentage of “buy” or equivalent ratings among sell-side analysts polled by FactSet:
| Company | Ticker | Share 'buy' ratings | Share neutral ratings | Share 'sell' ratings | Closing price - May 2 | Consensus price target | Implied 12-month upside potential |
| Cubic Corp. | CUB, +5.22% | 100% | 0% | 0% | $56.72 | $77.17 | 36% |
| ESCO Technologies Inc. | ESE, +2.59% | 100% | 0% | 0% | $74.85 | $80.00 | 7% |
| AAR CORP. | AIR, +2.99% | 80% | 20% | 0% | $32.80 | $47.00 | 43% |
| Moog Inc. Class A | MOG.A, +2.26% | 75% | 25% | 0% | $92.84 | $103.50 | 11% |
| Northrop Grumman Corp. | NOC, +0.73% | 74% | 26% | 0% | $289.93 | $324.00 | 12% |
| Boeing Company | BA, +0.18% | 72% | 28% | 0% | $375.80 | $442.82 | 18% |
| Axon Enterprise Inc. | AAXN, +1.62% | 71% | 29% | 0% | $64.26 | $68.50 | 7% |
| FLIR Systems Inc. | FLIR, +1.46% | 70% | 30% | 0% | $52.05 | $59.13 | 14% |
| Raytheon Co. | RTN, +1.28% | 68% | 32% | 0% | $177.04 | $206.16 | 16% |
| Aerojet Rocketdyne Holdings Inc. | AJRD, +1.84% | 67% | 33% | 0% | $36.43 | $41.00 | 13% |
| Motorola Solutions Inc. | MSI, +0.89% | 64% | 22% | 14% | $142.35 | $151.90 | 7% |
| L3 Technologies Inc. | LLL, +0.10% | 62% | 38% | 0% | $229.86 | $244.55 | 6% |
| TransDigm Group Inc. | TDG, -0.05% | 61% | 33% | 6% | $478.59 | $468.00 | -2% |
| Lockheed Martin Corp. | LMT, +0.46% | 61% | 39% | 0% | $332.55 | $362.95 | 9% |
| Curtiss-Wright Corp. | CW, +1.12% | 57% | 43% | 0% | $114.57 | $136.40 | 19% |
| Huntington Ingalls Industries Inc. | HII, +2.12% | 50% | 31% | 19% | $207.63 | $248.36 | 20% |
| Teledyne Technologies Inc. | TDY, +1.94% | 50% | 50% | 0% | $244.38 | $254.33 | 4% |
| General Dynamics Corp. | GD, +1.21% | 48% | 48% | 4% | $174.57 | $203.40 | 17% |
| ManTech International Corp. Class A | MANT, +1.33% | 44% | 45% | 11% | $63.01 | $65.00 | 3% |
| Triumph Group Inc. | TGI, +2.31% | 25% | 67% | 8% | $23.34 | $25.91 | 11% |
| AeroVironment Inc. | AVAV, +2.25% | 14% | 86% | 0% | $67.44 | $75.20 | 12% |
| Kaman Corp. Class A | KAMN, +3.36% | 0% | 80% | 20% | $60.70 | $57.33 | -6% |
| Source: FactSet | |||||||
Here’s the list again, this time sorted by how well the stocks have performed over the past three years against the S&P 1500 A&D subsector and the entire S&P 1500:
| Company | Ticker | Total return - 3 years | Total return - 5 years | Total return - 10 years | Total return - 15 years |
| Axon Enterprise Inc. | AAXN, +1.62% | 247% | 355% | 1242% | 297% |
| Boeing Company | BA, +0.18% | 203% | 229% | 1077% | 1146% |
| Teledyne Technologies Inc. | TDY, +1.94% | 161% | 161% | 671% | 1188% |
| TransDigm Group Inc. | TDG, -0.05% | 151% | 263% | 2594% | N/A |
| AeroVironment Inc. | AVAV, +2.25% | 129% | 100% | 181% | N/A |
| Motorola Solutions Inc. | MSI, +0.89% | 99% | 141% | 634% | 166% |
| Aerojet Rocketdyne Holdings Inc. | AJRD, +1.84% | 99% | 106% | 1375% | 244% |
| ESCO Technologies Inc. | ESE, +2.59% | 97% | 134% | 93% | 235% |
| ManTech International Corp. Class A | MANT, +1.33% | 92% | 136% | 115% | 208% |
| Moog Inc. Class A | MOG.A, +2.26% | 84% | 41% | 254% | 327% |
| L3 Technologies Inc. | LLL, +0.10% | 81% | 123% | 281% | 403% |
| FLIR Systems Inc. | FLIR, +1.46% | 78% | 59% | 130% | 395% |
| Lockheed Martin Corp. | LMT, +0.46% | 54% | 133% | 471% | 965% |
| Kaman Corp. Class A | KAMN, +3.36% | 50% | 59% | 335% | 564% |
| Curtiss-Wright Corp. | CW, +1.12% | 49% | 75% | 297% | 447% |
| Huntington Ingalls Industries Inc. | HII, +2.12% | 48% | 112% | N/A | N/A |
| Raytheon Co. | RTN, +1.28% | 48% | 106% | 406% | 696% |
| Northrop Grumman Corp. | NOC, +0.73% | 46% | 161% | 725% | 810% |
| AAR CORP. | AIR, +2.99% | 40% | 34% | 148% | 256% |
| Cubic Corp. | CUB, +5.22% | 38% | 20% | 108% | 163% |
| General Dynamics Corp. | GD, +1.21% | 30% | 73% | 320% | 410% |
| Triumph Group Inc. | TGI, +2.31% | -33% | -64% | 16% | 52% |
| S&P 1500 aerospace & defense subsector | 81% | 113% | 503% | 668% | |
| S&P 1500 Composite Index | 50% | 70% | 311% | 263% | |
The A&D subsector’s performance for the longer periods has been very impressive.
ETFs for investing in the A&D subsector
Here are three ETFs that track U.S. A&D stocks in various ways:
• The SPDR S&P Aerospace & Defense ETF XAR, +1.54% tracks the S&P Aerospace & Defense Select Industry Index SPSIAD, +1.54% which is an equal-weighted index of U.S. A&D companies. However, the ETF doesn’t precisely mirror the index. It holds shares of 31 A&D stocks with roughly a 40% large-cap, 40% mid-cap and 20% small-cap weighting. Its annual expenses are 0.35% of assets under management, according to FactSet.
• The iShares U.S. Aerospace & defense ETF ITA, +1.03% tracks the Dow Jones U.S. Select Aerospace & Defense Index DJSASD, +1.02% and holds 33 stocks. It is heavily weighted by market capitalization, with its top two holdings — Boeing and United Technologies UTX, +1.31% — making up 38% of the portfolio. The ETF’s expense ratio is 0.43%.
• The Invesco Aerospace & Defense ETF PPA, +1.28% tracks the Spade Defense Index, which is a market-cap weighted index of U.S. A&D and related companies. It holds 48 stocks and its expense ratio is 0.60%.
Here’s how the ETFs have performed against the S&P 500 over the past five years, with dividends reinvested:
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