Strong year-over-year growth in global air passenger demand is expected to boost aerospace-defense companies, particularly those in commercial aerospace, as rising passenger demand drives the need for new aircraft and fleet upgrades. However, persistent supply-chain disruptions may continue to hamper jet deliveries, posing challenges for industry players. Nevertheless, increased U.S. defense funding should benefit aerospace-defense firms focused on combat. The frontrunners in the aerospace-defense industry that you may add to your portfolio are RTX Corp. RTX, Leidos Holdings LDOS, Archer Aviation ACHR and RDW Corp. RDW.

About the Industry

The Zacks Aerospace-Defense industry comprises companies that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.

The industry also includes cyber security players that offer information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions. A portion of its revenues comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply-chain management services.

3 Trends Shaping the Future of the Aerospace-Defense Industry

Improved Air Traffic Outlook Boosts Prospects: Steadily improving global air traffic data in recent times has been boosting the near-term growth prospects of the industry. As stated in a report published by the International Air Transport Association (IATA) in January 2025, industry-wide global air passenger demand increased a solid 8.6% year over year in December 2024. Looking ahead, IATA projects the number of global air passengers to grow 6.7% in 2025 from the 2024 level (as per IATA’s latest outlook published in December 2024). Such impressive projections bode well for commercial aerospace manufacturers that have long borne the brunt of poor air travel in the form of delayed jet deliveries and, in some cases, cancellation of orders by airlines.

Expanding Defense Budget Remains a Growth Catalyst: While the commercial aerospace market overcame the woes of the pandemic and has been growing steadily over the past couple of quarters, the defense side of the industry stood its ground amid the COVID-19 crisis, cushioned by steady government support. To this end, it is imperative to mention that in August 2024, the U.S. Senate Committee on Appropriations approved the Fiscal Year (FY) 2025 Defense Appropriations Act, which provides $852.2 billion in total funding. This reflects a 3.3% increase over the approved funding during fiscal 2024. Such improved funding provisions set the stage for industry players focused on the defense business to win more contracts and expand their production volume, which is likely to boost their top line.

Supply-Chain Issues Will Continue to Hurt: Significant supply-chain disruptions adversely impacted the Aerospace and Defense industry, thanks to the pandemic-induced lower aircraft demand and restrictions on the movement of people and goods. This primarily affected small suppliers like aircraft part manufacturers, especially those with heavy exposure to commercial aerospace, and the aftermarket business. 

Although the global economy has been improving steadily over the past few quarters, the persisting supply-chain issues continue to be a challenge and are expected to remain so in the near term, thereby hurting the industry growth. To this end, in its December 2024 outlook, the IATA stated that an estimated 1,802 aircraft will be delivered in 2025, which comes well below its earlier expectation of 2,293 deliveries with further potential downward revisions this year. This decline can be largely attributed to persistent supply-chain issues affecting the aerospace sector. This, in turn, might constrict the growth trajectory of the U.S. Aerospace and Defense industry to some extent in the near term.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #136, which places it in the bottom 45% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. 

Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved down 13.2% to $4.66 since Nov. 30.

Before we present a few aerospace-defense stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Lags S&P 500 & Sector

The Aerospace-Defense industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively lost 5.4% against the Aerospace sector’s growth of 3.4%. The Zacks S&P 500 composite has gone up 23.3% in the said time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of the trailing 12-month EV/Sales ratio, which is used for evaluating capital-intensive stocks like aerospace-defense, the industry is currently trading at 2.22 compared with the S&P 500’s 5.33 and the sector’s 2.51.

Over the past five years, the industry has traded as high as 3.11X, as low as 1.53X and at the median of 2.46X, as the charts show below.

EV-Sales Ratio TTM

4 Aerospace-Defense Stocks to Add to Your Portfolio

Archer Aviation: Based in San Jose, CA, the company designs and develops electric vertical takeoff and landing aircraft for urban air mobility. On Feb. 11, 2025, Archer Aviation announced that it has raised a fund worth $301.8 million, further reinforcing Archer’s strong financial position and strategically positioning it to accelerate the development of its hybrid aircraft platform for the defense market and beyond. Leading institutional investors participated in this financing, including funds and accounts managed by BlackRock. This raise brought Archer’s total liquidity position to approximately $1 billion. 

The Zacks Consensus Estimate for 2025 earnings is pegged at a loss of 78 cents per share, suggesting a solid improvement from the year-ago estimated loss of $1.04. The stock boasts a four-quarter average earnings surprise of 6.89%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price & Consensus: ACHR

Leidos Holdings: Based in Reston, VA, Leidos is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors and systems engineering. On Feb. 11, 2025, the company announced its fourth-quarter 2024 results. Its revenues grew 10% year over year to $4.4 billion, while its adjusted earnings improved 19%. 

The Zacks Consensus Estimate for Leidos’ 2025 sales implies an improvement of 2.6% from the 2024 reported figure. LDOS boasts a long-term (three-to-five years) earnings growth rate of 7.4%. It currently carries a Zacks Rank #2. 

Price & Consensus: LDOS

RTX Corp.: Based in Waltham, MA, the company advanced products and services for commercial, military and government customers worldwide. On Feb. 12, 2025, RTX announced that it has successfully completed a successful live-fire test of its Lower Tier Air and Missile Defense Sensor (“LTAMDS”), showcasing this advanced 360-degree radar’s ability to detect and track threats. During the test, LTAMDS identified a high-speed cruise missile, enabling a Patriot Advanced Capability-2 (PAC-2) Guidance Enhanced Missile-T (GEM-T) to intercept the target.

RTX stock boasts a long-term earnings growth rate of 9.7%. The Zacks Consensus Estimate for 2025 sales indicates an improvement of 4.4% from the 2024 reported figure. RTX currently carries a Zacks Rank #2.  

Price & Consensus: RTX

Redwire Corp.: Based in Jacksonville, FL, the company provides mission-critical space solutions and high-reliability components for the next-generation space economy. On Feb. 12, 2025, Redwire revealed that it has been awarded a study contract from the European Space Agency to develop the preliminary spacecraft design for an upcoming astrophysics mission that will image faint galaxies in the nearby universe and provide insight into the nature of dark matter.

The Zacks Consensus Estimate for the company’s 2025 earnings, pegged at a loss of 17 cents per share, suggests a solid improvement from the year-ago estimated loss of $1.16. The Zacks Consensus Estimate for 2025 sales suggests an increase of 77.4% from 2024’s estimated sales. RDW currently carries a Zacks Rank #2. 

Price & Consensus: RDW
 

 

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