Baird downgrades Raytheon, Northrop on ‘mixed’ earnings expectations

Baird Equity Research analysts said in a new note that they foresee mixed Q4 2023 results for the majority of defense stocks, while maintaining bullish sentiment for the aerospace sector, citing “rising OEM rates and robust growth in Aftermarket.”

As such, the analysts downgraded Northrop Grumman (NYSE: NOC) and Rtx Corp (NYSE: RTX) to Neutral, both of which are within 10% of Baird’s price targets.

At the same time, the analysts established Bullish Fresh Picks for Boeing (NYSE: BA) and Spirit AeroSystems (NYSE: SPR) on “current market weakness.”

Finally, the analysts upgraded Triumph Group (NYSE: TGI) to Outperform to reflect “a balance sheet reset tied to pending divestiture.”

While downgrading its rating, Baird raised the price target on RTX from $88 to $94.

“By looking out an additional 12 months, we are consistent with the rest of our large cap Defense primes price targets, which all utilize 2025 estimates. Our rating change to Neutral reflects a more balanced risk/reward as the RTX stock has recovered 24% in the last two months vs the S&P 500 gaining 12%,” analysts led by Peter Arment said.

The analysts expect RTX’s 2024 performance to align with Street expectations, citing limited upside for estimate increases. Concerns persist over the cost profile of the geared turbofan (GTF) with the powdered metal fix.

By Vahid Karaahmetovic

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