Defense basket

[Cod Liver Oil]

Cowen thinks DOD spending on major weapons programs will more than double between now and 2027.

That is a pretty good tailwind for an oligopolistic industry. Which contractors are most levered to that spend?

I bought some LHX but Lockheed, RTX or TDG may benefit more. Based on this, the DOD is ok with defense contractors earning 15% net:

https://media.defense.gov/2022/Jan/26/2002927697/-1/-1/1/TESTIMONY FOR PRICE GOUGING IN MILITARY CONTRACTS.PDF

Trust, but verify.

Edited September 21, 2023 by Cod Liver Oil

[Dinar]

1 hour ago, Cod Liver Oil said:

Cowen thinks DOD spending on major weapons programs will more than double between now and 2027.

That is a pretty good tailwind for an oligopolistic industry. Which contractors are most levered to that spend?

I bought some LHX but Lockheed, RTX or TDG may benefit more.

RTX will probably be driven more by the engine issues.  

[Xerxes]

Depends on the short cycle or the long cycle. 
 

Short cycle business like artillery shells, munitions etc are better captured via European defense forms. 
 

Cold war, long cycle business, great power conflict oriented line of businesses, are better captured by the big three or four in the US. But their POs and budget will be driven by Pentagon budget. 
 

but at the end of the day there are a lot of interconnections. For instance Northrop has recently bowed from the NGAD bidding process voluntarily, but is aiming to be tier-2 supplier to whoever wins as prime contractor. That is a role that they are good at. Same can be said of BAE from Britain. 
 

Similarly, this may surprise people but the German company that makes artillery shells that no one has heard of pre 2022, and is now also a F-35 structural tier-2 supplier alongside Northrop. 

[Spekulatius]

I just added a little to RTX this AM. While the engine issue is an overhang, their defense business with a lot of exposure to electronics, missiles (hypersonics) is very well positioned to grab more business.

 

it also does  not seem that the military engine business from P&W is affected.