The U.S. government is the largest customer for many defense companies, providing a significant portion of their revenue. This stability and predictability can be beneficial for both the companies and investors. However, the revenue is mostly dependent on one customer also means that these companies are more susceptible to government spending and policy changes.
Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, and Raytheon Technologies are all major players in the defense industry.
- Lockheed Martin is the largest defense company in the world, and the lead contractor on the F-35 Joint Strike Fighter, an advanced fighter plane. The company also has a strong research capability and is involved in various other defense-related products.
- Boeing is best known for its commercial airplanes. Still, its defense business is also significant, with the company producing a variety of aircraft and helicopters for the Pentagon and being involved in space pursuits.
- Northrop Grumman is known for its stealth bombers and has a large portfolio in space technology. The company is also closely tied to the nuclear triad.
- General Dynamics is one of the primary military shipbuilders and has a portfolio of tanks and land vehicles and a large IT and services business.
- Raytheon Technologies is the product of the 2020 merger between Raytheon and United Technologies. The company specializes in defense electronics and missile systems and is involved in various military platforms led by other contractors.
The conflict will likely lead to increased defense sales in the future through the replenishment of weapons sent to Ukraine and as European allies look to strengthen their military capabilities.
However, it’s important to note that defense projects tend to have multi-year timeframes, so there is unlikely to be a significant near-term boost in sales due to the conflict.
Additionally, large defense contractors often generate better margins on research and development of new advanced weapons systems than they do from selling one-off missiles or ammunition. If the U.S. government were to deemphasize research to fund active operations, this could be a negative for defense stocks. However, given the importance of research, this seems unlikely to happen.