More defense spending will boost shares of General Dynamics and Northrop Grumman, according to RBC Capital Markets. Analyst Ken Herbert started covering General Dynamics and Northrop Grumman with better ratings, saying the war in Ukraine and continued risks in China will boost defense stockpiles in the near and long term. “We like NOC for its space and nuclear locations, and GD for Gulfstream acceleration and core locations in ship and ground vehicle,” Herbert wrote in a Monday note titled “Into the New Cold War.” “We believe that defense fundamentals remain favorable and increased defense spending (with less volatility) will justify a positive reassessment of the sector,” added Herbert. . Shares of General Dynamics have outperformed the major average this year, up 12%. However, the analyst has a $275 price target, implying a roughly 18% increase from Monday’s closing price of $233.70, driven by a recovery in aerospace profits. Shares rose slightly in pre-market trading on Tuesday. “Govstream distribution growth to drive Aerospace profit recovery, bizJet fundamentals remain strong, shipbuilding to benefit from submarine power and political support, outcry positive from the Ukrainian side,” reads the analyst’s investment thesis on General Dynamics. Meanwhile, shares of Northrop Grumman are up 25% this year, down just 2% from a 52-week high, but analysts expect further gains as the company’s exposure to the space markets is growing fast. Defense stock has a $550 price target, about 13% higher where the stock closed Monday at $485.81. Shares were unchanged in pre-market trading Tuesday. “Best exposure to growth in space market (~20% of company sales), well positioned in nuclear trio (B-21 & GBSD) as China high funding support , core large-cap defense stockpile,” read the note on Northrop Grumman. — Michael Bloom of CNBC contributed to this report.
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