It should barely come as a surprise that major US aerospace and defense companies have emerged as the big winners since the war in Ukraine began this February. It is highly likely that this rally continues in the medium-term future, as many countries increase their military and defense budgets in response to increased geopolitical tensions.
Key Facts & Figures
- Defense stocks are outperforming the market and major analysts predict the rally will continue.
- Major defense stocks have risen between 8% (General Dynamics) and 22% (Northrop Grumman). Lockheed Martin’s stock has risen more than 11% in the last 6 months.
- The military aid delivered to Ukraine is mainly in the form of weapons and other equipment manufactured by the big names in the industry.
- The war in Ukraine has led to a global increase in defense spending, as countries are taking preventative measures in case of other escalations of geopolitical tension.
The Importance of Monitoring Defense Spending
Information about defense spending has always been of great importance, but after Russia’s invasion of Ukraine, it has grown incomparably more valuable. TenderAlpha’s Global Defense and Military Contracting News Feed contains news articles and contract announcement reports about defense and military government contract awards in the US, the EU, the UK, and Russia.
In one of its previous studies, TenderAlpha discovered that government contract awards can have a positive impact on the awardee’s stock price. That being said, the Defense and Military Contracting News Feed can be a useful tool for investors in picking their stocks.
Daily updates enable a dynamic, almost real-time monitoring and analysis of public spending in the defense sector, thus providing timely information for investors. Tests have shown that there exists a post-news release drift effect for large government contract awards. In essence, the effect reveals the potential of these contracts to affect the stock performance of major defense suppliers.
The Impact of Government Contract Awards on Defense Suppliers
A recent defense sector analysis performed by TenderAlpha showed that some of the largest defense suppliers - Lockheed Martin, Boeing, Raytheon, and Booz Allen Hamilton - rely heavily on government sales.
For example, 99% of Lockheed Martin’s 2021 sales came from government customers. The figure was similar for Booz Allen Hamilton, whose US government sales amounted to 97% of its total sales in 2021.
Then, Boeing - another major defense supplier, had almost 50% of its total sales in 2021 made to the US government.
What Comes Next?
US defense spending is likely to grow to between 3.5% and 4% of GDP according to Bank of America analysts. As mentioned above, countries like Japan and Germany have also been increasing their military spending.
With this, there is also a clear, consistent growth in military stocks, as well as a well-documented reliance on government contract awards for major suppliers.
Bearing all this in mind, success in public procurement can be a key for investors to understand stock behavior and companies’ future outlook.
TenderAlpha’s forward-looking receivables feed enables monitoring each ticker’s expected government receivables at all times, thus giving investors potentially market-beating, timely information.
Interested in testing what TenderAlpha’s feeds can do for you? Get in touch for a free trial!