Chicago, IL – May 13, 2025 – Today, Zacks Equity Research discusses Airbus Group EADSY, Leidos Holdings LDOS and Huntington Ingalls Industries HII.
Industry: Aerospace - Defense
Link: https://www.zacks.com/commentary/2466916/3-aerospace-defense-stocks-to-buy-amid-impressive-us-budget-proposal
Higher U.S. defense spending is expected to benefit aerospace-defense firms specializing in military and combat-focused aerospace solutions. However, ongoing supply-chain disruptions may continue to affect industry players from the aerospace-defense space.
On a positive note, robust year-over-year growth in global air passenger demand is set to support aerospace-defense companies, especially those in commercial aviation, as airlines seek new aircraft and fleet upgrades. The frontrunners in the aerospace-defense industry that you may add to your portfolio are Airbus Group, Leidos Holdings and Huntington Ingalls Industries.
The Zacks Aerospace-Defense industry comprises companies that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.
The industry also includes cyber security players that offer information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions. A portion of its revenues comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply-chain management services.
Improved Air Traffic Outlook Boosts Prospects: Steadily improving global air traffic data in recent times has been boosting the near-term growth prospects of the industry. As stated in a report published by the International Air Transport Association (IATA) in March 2025, global air passenger traffic posted tepid growth, with industry-wide revenue per kilometer (RPK) rising 3.3% year over year to 738.8 billion.
Looking ahead, IATA projects the number of global air passengers to grow 6.7% in 2025 from the 2024 level (as per IATA’s latest outlook published in December 2024). Such impressive projections bode well for commercial aerospace manufacturers that have long borne the brunt of poor air travel in the form of delayed jet deliveries and, in some cases, cancellation of orders by airlines.
Expanding Defense Budget Remains a Growth Catalyst: While the commercial aerospace market overcame the woes of the pandemic and has been growing steadily over the past couple of quarters, the defense side of the industry stood its ground amid the COVID-19 crisis, cushioned by steady government support. To this end, it is worth noting that in May 2025, a White House report was published stating that U.S. President Trump has proposed a 13% increase in the nation’s defense spending to $1.01 trillion for fiscal year 2026. Such improved funding provisions set the stage for industry players focused on the defense business to win more contracts and expand their production volume, which is likely to boost their top line.
Supply-Chain Issues Will Continue to Hurt: The Aerospace and Defense industry continues to face headwinds from supply-chain disruptions that began during the pandemic, caused by reduced aircraft demand and global movement restrictions. These challenges have disproportionately affected smaller suppliers, particularly those closely tied to the commercial aerospace and aftermarket services sectors. While the global economy has gradually recovered, supply-chain constraints persist and are likely to hinder industry growth in the near term.
In its December 2024 outlook, the IATA projected 1,802 aircraft deliveries in 2025, substantially lower than the earlier forecast of 2,293, with potential further downward revisions. This shortfall was largely due to ongoing supply-chain bottlenecks. Additionally, the newly imposed U.S. tariffs on imported goods could intensify global supply-chain issues, potentially delaying the procurement of critical aerospace components. These factors may elevate production costs and disrupt manufacturing timelines, adding to uncertainty for industry players and constraining growth prospects for the U.S. Aerospace and Defense sector in the short run.
The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #92, which places it in the top 37% 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.
The industry’s position in the top 50% of the Zacks-ranked industries is due to a positive earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved up 0.4% to $4.66 since March 31.
Before we present a few aerospace-defense 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 industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively gained 7.2% compared with the Aerospace sector’s growth of 11.9%. The Zacks S&P 500 composite has gone up 8.3% in the said time frame.
On the basis of the trailing 12-month EV/Sales ratio, which is used for evaluating capital-intensive stocks like aerospace-defense, the industry is currently trading at 2.82 compared with the S&P 500’s 4.86 and the sector’s 2.51.
Over the past five years, the industry has traded as high as 2.97X, as low as 1.32X and at the median of 2.57X.
Airbus Group: Based in Mendelweg, the Netherlands, the company manufactures airplanes and military equipment. On April 30, 2025, Airbus announced its first-quarter 2025 results. Its revenues improved 6% year over year, while its earnings per share surged a solid 33%.
The Zacks Consensus Estimate for EADSY’s 2025 sales is pegged at $82.57 billion, suggesting a solid improvement of 10.4% from the year-ago reported number. The stock boasts a long-term earnings growth rate of 4%. It currently sports a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.
Leidos Holdings: Based in Reston, VA, Leidos is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors and systems engineering. On May 6, 2025, the company announced its first-quarter 2025 results. Its revenues grew 7% year over year to $4.25 billion, while its adjusted earnings improved 30%.
The Zacks Consensus Estimate for Leidos’ 2025 sales implies an improvement of 2.7% from the 2024 reported figure. LDOS boasts a long-term (three-to-five years) earnings growth rate of 7.4%. It currently carries a Zacks Rank #2 (Buy).
Huntington Ingalls.: Based in Newport News, VA, the company designs, builds and maintains nuclear-powered ships such as aircraft carriers and submarines, and non-nuclear ships, such as surface combatants, expeditionary warfare/amphibious assault and coastal defense surface ships. It also provides after-market services for military ships around the globe. On May 1, 2025, Huntington Ingalls released first-quarter results. The company received orders worth $2.1 billion in the quarter. As a result, its total backlog reached $48 billion as of March 31, 2025.
HII stock boasts a long-term earnings growth rate of 11%. The Zacks Consensus Estimate for 2025 sales indicates an improvement of 3.5% from the 2024 reported figure. HII currently carries a Zacks Rank #2.
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