Chicago, IL – April 24, 2025 – Today, Zacks Equity Research discusses BWX Technologies BWXT, CAE Inc. CAE and Astronics ATRO.
Link: https://www.zacks.com/commentary/2453889/3-defense-equipment-stocks-to-buy-amid-bright-air-traffic-view
Strong global air passenger traffic projections present attractive growth prospects for stocks in the Zacks Aerospace-Defense Equipment industry. However, ongoing supply-chain disruptions in the commercial aerospace sector may dampen demand for aircraft components, potentially weighing on profitability and cash flow. Despite these challenges, the industry is likely to benefit from strategic mergers and acquisitions, which can drive operational efficiencies, expand market reach and broaden product portfolios.
These initiatives should help industry players counterbalance existing headwinds and better position themselves for sustained growth. Some key players from this industry that investors may add to their portfolio are BWX Technologies,CAE Inc. and Astronics.
The Zacks Aerospace-Defense Equipment industry comprises firms that manufacture various vital components for the aerospace-defense space, ranging from aerostructures, space shuttles, propulsion systems, aircraft engines, defense electronics, missile and radar systems to flight test equipment, structural adhesives, instrumentation and control systems, communication products and many more.
Some of these companies also offer integrated simulation and training services to the U.S. defense force. While most of the revenues are generated from the production of the aforementioned accompaniments, the industry players also generate revenues by providing notable aftermarket support and services like maintenance, repair and overhaul activities to aerospace and defense players.
New M&As Instill Hope: Rising competition has historically prompted industry majors to expand their product lines through valuable mergers and acquisitions (M&As). In April 2025, HEICO Corporation announced that its Mid Continent Controls, Inc. ("MC2") subsidiary acquired all of the ownership interests of Rosen Aviation, which designs and manufactures in-flight entertainment (IFE) products, principally in-cabin displays and control panels, for the business and VVIP aviation markets.
In February, Teledyne Technologies completed the acquisition of select aerospace and defense electronics businesses from Excelitas Technologies for approximately $710 million. The acquisition includes the optical systems business (known under the Qioptiq brand based in Northern Wales, UK) as well as the U.S.-based advanced electronic systems business. Such consolidations should improve economies of scale for the industry as a whole, with the players having access to diversified business models. This, in turn, should bolster their revenue growth as well as market reach.
Impressive Air Traffic View Boosts Prospects: World air travel data has been on a steady growth trajectory over the past few months, driven by pent-up passenger demand. Per a report published by the International Air Transport Association ("IATA") in December 2024, revenue passenger kilometers (RPKs) — the metric used to indicate air passenger demand — is projected to grow 8% in 2025.
Consequently, airline industry revenues are expected to reach a historic high of $1.007 trillion this year, implying a 4.4% year-over-year improvement. Such projections bode well for aerospace-defense equipment industry stocks, especially those engaged in commercial aviation.
Supply-Chain Disruption Poses Risk: The persistent supply-chain issues continue to affect global trades and businesses. Airlines have been directly affected by unforeseen maintenance issues on some aircraft/engine types, as well as delays in the delivery of aircraft parts and aircraft, thereby limiting capacity expansion and fleet renewal.
To this end, IATA announced in its December 2024 outlook that supply-chain vulnerabilities will continue to affect the profitability of the global airline industry in 2025. Notably, IATA estimates 2025 aircraft deliveries to be 1,802, which comes well below the earlier expectation of 2,293. It also predicts further downward revisions this year. Fewer jet deliveries imply lower demand for aircraft parts. This, in turn, may cause Original Equipment Manufacturers to scale down their production volume, resulting in lower earnings and cash flows for the aerospace and defense equipment industry in the near term.
The Zacks Aerospace-Defense Equipment industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #22, which places it in the top 9% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few aerospace-defense equipment stocks that you may want to add to your portfolio, let's take a look at the industry's recent stock market performance and valuation picture.
The Aerospace-Defense Equipment industry has outperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively surged 13.8% in a year, while the Aerospace sector has risen 3.2%. The Zacks S&P 500 composite has gained 2% in the same time frame.
On the basis of trailing 12-month EV/Sales, which is used for valuing capital-intensive stocks like aerospace-defense equipment, the industry is currently trading at 6.80X compared with the S&P 500's 4.57X and the sector's 2.74X.
Over the past five years, the industry has traded as high as 7.83X, as low as 2.82X and at the median of 5.72X.
Astronics: Based in East Aurora, NY, Astronics is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport and private business jet aircraft. On April 3, 2025, Astronics announced that it has been selected to provide the Frequency Converter Unit ("FCU") for the NASA and Boeing Transonic Truss-Braced Wing (TTBW) X-66 aircraft demonstrator. In addition to designing the FCU, Astronics will collaborate with project stakeholders to support ground and flight tests, slated to start in 2028. This should strengthen ATRO's position in the aerospace market.
Looking ahead, the Zacks Consensus Estimate for ATRO's 2025 sales indicates a 3.6% improvement from the previous year's registered number. The estimate for 2025 earnings implies a 3.7% improvement from the previous year's reported number. ATRO currently sports a Zacks Rank #1 (Strong Buy).
BWX Technologies: Based in Lynchburg, VA, BWX Technologies provides safe and effective nuclear solutions for global security, clean energy, environmental restoration, nuclear medicine and space exploration. On April 9, 2025, the company announced that it has secured a U.S. Department of Energy award to manage and operate the Strategic Petroleum Reserve. The estimated value of the contract is approximately $2.6 billion. Such contract wins add to the company's backlog count and bolster its revenue generation prospects.
The Zacks Consensus Estimate for BWXT's 2025 sales indicates an 11.7% improvement from the previous year's reported number. The stock boasts a long-term earnings growth rate of 11.5%. It currently carries a Zacks Rank #2 (Buy).
CAE Inc.: Based in Montreal, Canada, CAE provides simulation and modelling technologies, and integrated training services to the civil aviation industry and defense forces around the globe. On March 31, 2025, CAE announced that its Defense & Security unit has been awarded the competitive re-compete to support the U.S. Army Aviation Center of Excellence and the 110th Aviation Brigade under the Advanced Helicopter Flight Training Support program.
The award offers comprehensive training support for the U.S. Army's advanced airframes, valued at approximately $180 million. Such contract wins add to the company's backlog count and bolster its revenue generation prospects.
The Zacks Consensus Estimate for CAE's 2025 sales indicates a 2.8% improvement from the previous year's reported number. The stock boasts a long-term earnings growth rate of 16.5%. CAE currently holds a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
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