Budget Proposal Not as Bad as Expected for Aerospace & Defense (PPA) - Jefferies
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Analysts at Jefferies commented on the Aerospace & Defense sector Thursday, as represented by ETF PowerShares Aerospace & Defense (NYSE: PPA), in light of the proposed $526.6 billion DoD base budget, which is in-line with the FY13 budget request of $525.4 billion. These figures exclude sequestration reductions of about $33 billion in FY13 and $52 billion for FY14.
Related to stocks in the sector, Jefferies' analysts led by Howard Rubel said the implications from the proposed budget is not a bad as possible if there is no sequester.
"In its current state, the FY14 Budget points to minimal disruption for the top programs. This appears reasonable as large funding disruptions cause production inefficiencies, a point well understood by the DoD and reflected in the budget," Rubel said.
The firm favors General Dynamics Corp. (NYSE: GD) and The Boeing Company (NYSE: BA). "Boeing has a number of programs that are core to the armed services and could experience growth over the next several years. Top platforms include the EA-18G, P-8A, and KC-46A. For GD, its Marine business is funded at reasonable levels. A second Virginia Class submarine is funded in FY14 coupled with continued development of the Ohio Replacement program. This program should be a long-term growth driver. Areas of possible stress also appear to be supported by the budget. M-1 Abrams Tanks Upgrades are funded at $270MM, down slightly from $300.8MM in 2013. There also appears to be future opportunities with the Ground Combat Vehicle and the Amphibious Combat Vehicle."
Related to stocks in the sector, Jefferies' analysts led by Howard Rubel said the implications from the proposed budget is not a bad as possible if there is no sequester.
"In its current state, the FY14 Budget points to minimal disruption for the top programs. This appears reasonable as large funding disruptions cause production inefficiencies, a point well understood by the DoD and reflected in the budget," Rubel said.
The firm favors General Dynamics Corp. (NYSE: GD) and The Boeing Company (NYSE: BA). "Boeing has a number of programs that are core to the armed services and could experience growth over the next several years. Top platforms include the EA-18G, P-8A, and KC-46A. For GD, its Marine business is funded at reasonable levels. A second Virginia Class submarine is funded in FY14 coupled with continued development of the Ohio Replacement program. This program should be a long-term growth driver. Areas of possible stress also appear to be supported by the budget. M-1 Abrams Tanks Upgrades are funded at $270MM, down slightly from $300.8MM in 2013. There also appears to be future opportunities with the Ground Combat Vehicle and the Amphibious Combat Vehicle."
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