Investor's Business Daily, August 7th, 2007
Lousy commercial airline performance might have customers squawking these days, but investors in the aerospace industry have been soaring.
Demand for new and improved aircraft and defense systems has profits at individual companies lifting off. Of shining note has been iShares Dow Jones U.S. Aerospace & Defense Fund ITA. The year-old exchange traded fund is up 21% year to date, and up 0.5% for the past month.
The fund likely will continue to perform, analysts say, as long as demand stays up.
If anti-war activists succeed in ending the Iraq War, it is likely some industry slump would occur and cause a bump in the fund, experts predict.
But the fund's current height isn't all due to the ongoing war in Iraq and resulting increased need for defense materials. Increased need for air travel has aircraft manufacturers smiling.
Last month, three of the fund's top holdings announced big profits.
Boeing Reports
The fund's biggest player, Chicago-based aircraft maker Boeing BA, posted higher-than-projected second-quarter profits. Boeing hiked its full-year forecast, citing strong sales of commercial planes. Its commercial aircraft unit sales climbed 22% and its defense units rose 3%.
Boeing was the third major aerospace and defense company to report increased profits last quarter. Other top holdings General Dynamics GD and Lockheed Martin LMT also performed well, with General Dynamics beating projected quarterly earnings by almost 3%.
Another of the fund's holdings, Precision Castparts PCP, continues to please.
Analysts expect the maker of metal parts for turbine engines should profit from recent acquisitions.
Other Profit Reports
When it comes to profits, B/E Aerospace BEAV is no slouch, either. Its second-quarter earnings jumped 29%, from 24 cents per share to 31 cents per share, and its stock hit new highs in July. The Wellington, Fla.-based company is the world's largest maker of plane seats and also installs oxygen masks, food carts and other equipment for jets.
Waltham, Mass.-based Raytheon RTN also saw a recent stock price surge.
The company announced last week that it nailed a $24.4 million U.S. Navy contract to equip 24 Royal Australian Air Force F/A-18F Super Hornets with its new ALR-67(V)3 digital radar warning receiver.
Raytheon recently landed a contract to provide 55 radar warning receivers plus spares for the RAAF.
The company also is designing combat systems for a new class of naval destroyers that analysts and executives say will reshape the company and possibly the U.S. Navy.
