As the Trump Administration approaches its 100th day, budget cuts have taken center stage. President Trump has unleashed DOGE on the federal budget, wielding a chainsaw approach to spending cuts. The nature of the cuts will tell us something about the new White House priorities.
DOGE, so far, is focused more on civilian budget cuts than military, and the new Administration is planning to present Congress with a defense budget request in the neighborhood of $1 trillion. And the prospect of higher defense spending is bullish for defense stocks.
Goldman Sachs analyst Noah Poponak lays out the case, and the reasons to move towards defense stocks, writing: “The medium-term defense budget picture looks better than we thought. The DoD budget is still likely closer to a peak than a trough, and it is not entirely clear where each of the next few years will land, plus there are still margin questions. But at a minimum the near-term trajectory is looking higher than we thought…”
Following this line of thought, Poponak has pulled the trigger on two defense stocks with exposure to growth segments of the larger defense sector. Let’s give these picks a closer look, using the latest data drawn from the TipRanks platform and the comments from the Goldman expert.
L3Harris Technologies(LHX)
The first stock we’ll look at is a $40 billion technology firm and contractor company with strong ties to the defense industry. The company in its current form dates back to 2019, when it formed through the merger of L3 Technologies and Harris Corporation. Today, L3Harris offers solutions in the fields of autonomous systems, command and control, electronic warfare, ISR and SIGINT, missile warning and defense, and resilient communications – all vital capabilities in high demand by the Pentagon, as well as by specialized civilian agencies.
L3Harris produces a wide range of defense-oriented products, including such varied items as the Sky Warden ISR/Strike aircraft, various uncrewed and remotely operated surface vessels, solid rocket motors, airborne networking radios, and the Viper Shield digital electronic warfare suite for the F-16 program. The company operates in more than 100 countries, and generated over $21 billion in revenue last year.
Turning to the company’s most recent set of financial results, we find that L3Harris brought in $5.1 billion in 1Q25, a result that was down 2.1% vs. 1Q24 and missed expectations by $120 million. At the bottom line, the company realized a non-GAAP EPS of 2.41, beating the forecast by 9 cents per share.
Nevertheless, we should note here that L3Harris’ stock has been outperforming the broader markets recently. For the year-to-date, while the S&P 500 has dropped 6%, LHX shares are actually up by more than 3%.
Goldman’s Poponak points out why it makes sense to consider the opportunity afforded to investors here. The analyst says of this defense contractor, “L3Harris could be well positioned in a higher defense spending environment, given its exposure to faster growing parts of the budget. It does not hold any one major platform program that would have risk of spending reduction or margin challenge. Its company-wide margin performance has been better than peers in recent quarters. And it trades at a valuation discount to the average of the large-cap prime contractors.”
The Goldman sector expert goes on to rate LHX as a Buy, and his $263 price target points toward a share gain of 22% in the coming year. (To watch Poponak’s track record, click here)
L3Harris holds a Moderate Buy consensus rating from the Street, based on 15 recent reviews that break down to 11 Buys and 4 Holds. The shares are priced at $216.08 and their $249.27 average target price implies a 12-month upside potential of 15%. (See LHX stock forecast)
Huntington Ingalls(HII)
Next on our list is Huntington Ingalls, best-known as the largest warship builder in the US – but also a major technology developer in the defense sector. The company operates two shipbuilding divisions – Ingalls Shipbuilding and Newport News. The first, based in Mississippi and Alabama, employs over 11,000 people designing and building a range of amphibious ships, destroyers, and cutters for both the US Navy and the US Coast Guard. This division is the Navy’s largest provider of surface combatants.
The company’s second main division, Newport News, employs 25,000 people and is based in Virginia, on the James River just upstream from Hampton Roads and Norfolk. This area has been the Navy’s largest base and construction port since the nation’s founding, and today Huntington Ingalls’ installations there build and maintain the Navy’s fleets of nuclear-powered aircraft carriers and submarines. Huntington is currently building the Navy’s new Ford-class supercarriers, and carries out the mid-life refueling and overhaul on the Nimitz-class ships.
The third main division in Huntington Ingalls’ operations, Mission Technologies, has over 7,000 workers and operates through more than 100 facilities around the world. The division works on the development and application of various defense-related tech, including artificial intelligence, cyber warfare, nuclear technology, and a wide range of cutting-edge sensor systems.
HII stock has also outperformed the broader markets this year, and convincingly so. So far in 2025, the shares are up by 20.5%.
The gains have been accrued despite the stock taking a beating following the February release of HII’s 4Q24 results. Huntington Ingalls dialed in quarterly revenues of $3 billion, down 5.7% from the fourth quarter of 2023 – and missing the forecast by $60 million. At the bottom line, the company’s $3.15 EPS figure was 38 cents per share less than had been expected. On a more positive note, the company has a solid work backlog, totaling $48.7 billion as of the end of 2024.
Analyst Poponak note the issues the company has faced, but takes a positive stance, writing of the naval builder, “We expect Navy shipbuilding to be relatively high priority within the defense budget medium-term and for HII to benefit. The bigger question at the company recently has been margins, as labor and supply chain challenges drove cost overruns. A recent executive order appears to cement the administration’s focus on domestic maritime labor, supply chains, and production, and there is the possibility for Shipyard Accountability and Workforce Support (SAWS) language to be implemented in the future. That could drive margin upside for HII. Even in the absence of SAWS, HII has now reset margin input assumptions lower in two consecutive quarters, and historically has rarely done so in three… The stock trades at a valuation discount to the large-cap defense primes on most key metrics.”
These comments support Poponak’s Buy rating, and his $234 price target implies an 8% gain for the shares on the one-year horizon.
The Goldman view is bullish, but the overall view on HII is more cautious. The consensus rating here is a Hold, based on 7 reviews that include 1 Buy, 4 Hold, and 2 Sells. Most seem to think the stock is overvalued; it is currently priced at $226.05 and its $182.29 average price target implies a downside for the coming year of 19%. (See HII stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
