In This Article:
Investing.com -- Morgan Stanley upgraded its view on the U.S. defence sector to "Attractive" from "In-line" on expectations of a $1 trillion defence budget in fiscal 2026 and rising international arms exports, calling recent developments a turning point for industry sentiment.
The firm named Northrop Grumman (NYSE:NOC) as its top pick, citing strong alignment with enduring Pentagon priorities such as nuclear modernization and space.
It also upgraded Lockheed Martin (NYSE:LMT) to “Overweight” from “Equal-weight,” while downgrading General Dynamics (NYSE:GD) to “Equal-weight.”
Defense stocks stand to gain from increased U.S. spending, rising export demand, and limited exposure to tariffs, Morgan Stanley believes, pointing to the sector’s largely domestic supply chains and cost-plus contracts.
The firm expects increased defense exports could help U.S. trade imbalances and sees international demand for platforms like the F-35 as resilient despite some geopolitical concerns.
For Lockheed, it sees improving sentiment after recent charges, with international exposure making the company a likely beneficiary of global demand.
Morgan Stanley raised its price target on the stock to $575 from $525.
General Dynamics was cut due to exposure to tariffs through its Gulfstream jet business and risk from federal consulting contract cuts under the government’s ongoing cost-review initiative, known as DOGE.
Its price target was lowered to $305 from $315.
Northrop’s growing international footprint, improved outlook for the B-21 bomber, and robust free cash flow potential support a raised price target of $625, up from $580.
Morgan Stanley said the firm’s defense portfolio remains “among the most resilient” in the industry.
Related articles
MS bullish on defence stock on $1 trillion budget outlook, picks Northrop top pick
Parkland CEO Bob Espey to step down amid pressure from Simpson Oil
BNP Paribas cuts Tesla target, warns Q1 may force rethink on earnings outlook
