Impact of U.S. Elections on Stock Performance 📈
The U.S. electoral process significantly influences the stock market. The outcomes serve as pivotal moments, with the policies advocated by the winning presidential candidate, along with the newly formed House of Representatives, favoring specific sectors over others. This year, the interplay between politics and finance continues to be particularly noteworthy.
Current Global Tensions and Their Market Reactions 🌏
In light of escalating tensions with China and ongoing conflicts in the Middle East, candidates from both political parties have aligned their defense policies. The focus is shifting towards enhancing national security, marking a consensus that has not gone unnoticed by investors.
Defense Sector Performance Amidst Political Developments 💼
This year, the S&P Aerospace & Defense Select Industry Index has surged by 17.37% year-to-date (YTD). Analysts maintain a bullish outlook, especially as Citigroup analysts recently updated several defense stock price targets.
On October 10, Citigroup analysts reported significant adjustments, with defense sectors receiving the majority of attention. Among the updates, let’s take a closer examination of the highlighted companies.
Science Applications International Corporation (NASDAQ: SAIC) 🔍
Citi analyst Jason Gursky has reaffirmed a positive outlook for Science Applications International Corporation, raising the price target from $160 to $176. Achieving this target would indicate a 23.3% growth compared to its current value of $142.74. This year, SAIC shares have appreciated by 14.57%, and the next earnings call is scheduled for December 2.
SAIC has successfully secured key contracts with military bodies and NASA, including a noteworthy $229 million deal aimed at modernizing NORAD’s IT infrastructure.
Other firms share Citi’s optimism, with Wells Fargo recently increasing its target to $157 from $122 and JPMorgan upgrading its rating to ‘Overweight’ with a target of $170.
L3Harris Technologies (NYSE: LHX) 🚀
For L3Harris Technologies, analyst Jonathan Raviv has adjusted the price target from $268 to $291. This adjustment stems from the increased defense budgets across Europe and fresh spending proposals in the U.S. Currently, LHX trades around $242.35, suggesting a potential 20.7% increase to meet the new target. This year, the stock has rallied by 15.53%, with the next earnings call planned for October 24.
In 2024, L3Harris secured a substantial $587 million Navy contract focusing on electronic warfare systems and a multi-year deal for advanced artillery shell fuzes that could reach $871 million in value. The firm also earns political favor from notable figures like Senator Lindsey Graham.
General Dynamics (NYSE: GD) 🛡️
General Dynamics also received a maintained ‘Buy’ rating with a raised target from $331 to $354. As of now, GD shares are trading at $296.09, up 14.50% YTD, indicating a potential 19.57% upside based on Gursky’s forecast. The next earnings report from General Dynamics is expected on October 23.
Recently, the firm documented a $491.6 million contract with the Space Development Agency, along with a $1.3 billion modification contract for the upgrade of Virginia-class submarines.
Leidos Holdings (NYSE: LDOS) 🖥️
Citi analysts have raised the target for Leidos Holdings from $169 to $194, while maintaining a ‘Buy’ recommendation. Presently trading at $166.27, Leidos’ stock has grown by an impressive 53.96% this year, with an upside forecast of 16.67%. The upcoming earnings report is set for October 29.
Notably, Leidos has secured a $7.9 billion contract to provide military hardware, further reinforcing its position in the defense contracting market.
Lockheed Martin (NYSE: LMT) ✈️
Analyst Jason Gursky has sustained a ‘Buy’ rating for Lockheed Martin and raised the price target from $570 to $700. Lockheed shares currently trade at $601.46, reflecting a 31.87% YTD increase. The next earnings call will take place on October 22.
While Lockheed previously exhibited strong performance, its competitors, Northrop Grumman and Raytheon, have received more modest outlooks. Price targets for Northrop Grumman increased from $521 to $587, and Raytheon from $122 to $132, showing an 11.37% and 7.4% potential rise, respectively. Lockheed stands out among its peers, boasting significant defense contracts, including a $5 billion agreement for F-35 production and maintenance.
Hot Take: Navigating the Defense Market Landscape 🔍
This year, the ramifications of political actions on the defense and broader market continue to evolve. With rising geopolitical tensions and strategic shifts in budget allocations, defense stocks exhibit promising trends. As an attentive reader, staying informed on these developments can offer insights into overall market trajectories influenced by political dynamics.
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