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Military industrials’ complex earnings

Earnings season is stumbling along. And considering analysts’ tepid projections heading into 2023, results over the first few days have, well… managed to somehow be even more disappointing than expected.

Yesterday, big names like Microsoft revealed some of their slowest sales numbers in years, with guidance warning that things will likely get worse over the near-term.

The buzzword of the day was ‘imminent recession’; as news sentiment slid hard from bullish towards bearish. Many say we’re already firmly in recession territory, and that it’s just a matter of time before it’s ‘official’ (more on this from Austin Hankwitz here).

So naturally, I wondered — which companies perform well during times like this? Like… who hasn’t shit the bed so far? The answer (which may not surprise you):

Defense Stocks 🪖

Lockheed Martin | Raytheon

If there’s one thing America does best, it’s pumping out weapons of destruction baby.

Two of the biggest names in the defense industry rolled out their Q4 reports yesterday, both managing to meet/exceed expectations pretty easily. A quick synopsis:

1. Lockheed Martin: posted earnings per share of $7.40 (vs. $7.41 estimates) alongside a 7.3% growth in revenues to $19B

2. Raytheon: posted 15% growth in earnings per share of $1.27 (vs. $1.24 estimates), along with 6% revenue growth to $18B

Both stocks have significantly outperformed the market this year:

It makes total sense that two of the world’s biggest suppliers of military aircraft, guided missiles, and air defense systems would perform so well in 2022, especially when you consider:

• The US defense budget has ballooned to all-time high’s ($817B) 🤯

• The US has also provided Ukraine with $27.5B in various military aid over the past year, with billions more awaiting approval

An outsized chunk of all this spending goes directly into the bank accounts of large military industrial complex companies like Lockheed Martin & Raytheon.

But what makes less sense just how ‘under the radar’ (pun intended) the defense spending has become, particularly as it pertains to the Russia-Ukraine war.

While the war in Ukraine was once front page news, coverage of the war has dropped drastically in recent months as news outlets shift focus to shinier objects.

In fact, since Russia’s invasion of Ukraine back in February 2022, news volume mentioning 'Russia’ or ‘Ukraine’ has dropped by -85%

For better or worse, some of the companies that perform best through a recession seem be ones that benefit most from the military industrial complex — and perhaps it’s in their best interest for people to not be talking about them.

NEWS NUGGETS🥔

Top trending commentary parsed from news coverage

Bullish News Snippets

🟢 | 📰 Investing.com | 🗣️ rising price targets from JPMorgan…

“JPMorgan raised the price target on Comerica) to $75.00 from $72.00 while maintaining an Overweight rating following the company’s reported Q4 EPS beat last week.”

🟢 | 📰 InsiderMonkey | 🗣️ analysts say it’s an undervalued pharma play…

To benefit from the growth in the pharma industry, some of the most undervalued stocks to buy according to hedge funds include Pfizer, Bausch Health Companies, and Moderna”

Bearish News Snippets

🔴 | 📰 Investing.com | 🗣️ dim outlook for 2023…

“3M reckons sales will fall by between 2% and 6% in 2023, while underlying earnings will fall by some 12% to a range of around $8.75 a share.”

🔴 | 📰 NNN | 🗣️ another dim outlook for 2023…

'“Generac investors are betting business will hit rock bottom this year. Analysts think the company’s profit will drop more than 13% in 2023.”

Other Big Earnings This Week

🔴  | 📰 MarketWatch | 📆 reports earnings Thursday at open

“Southwest, post-meltdown: reporting on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.”

🟢  | 📰 YahooFinance | 📆 reports earnings Thursday at open

“Driven by soaring demand on healthy bookings, management expects total revenues in the fourth quarter of 2022 to be roughly 11-13% higher than the level recorded in fourth-quarter 2019.”

🟢  | 📰 TipRanks | 📆 reports earnings Thursday after close

“While Visa’s earnings are likely to increase, Wall Street maintains a bullish outlook on the stock. Moreover, Visa stock’s price target of $256.59 implies 14.69% upside potential.”

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

SENTIMENT KEY: 🟢=bullish, 🌑=neutral, 🔴=bearish