The Zhitong Finance App learned that Guggenheim Securities recently launched its first coverage of 22 aerospace and defense companies. The overall tone is: they are optimistic about defense contractors and aircraft manufacturers, but they are cautious about commercial aviation aftermarket suppliers. The agency pointed out that against the backdrop of weakening passenger demand and airlines facing higher fuel costs, the outlook for the aftermarket sector is weakening.
Defense stocks: buying window after valuation retracted by more than half
In the field of defense, Guggenheim believes that a rare “mistaken kill” buying point is currently emerging. Analysts said that since the high in March 2026, defense stocks have fallen by about 25%, and the contraction of the forward valuation multiples has reached about 55%. With the support of geopolitical threats, weapons inventory replenishment, and military modernization, defense spending is expected to continue into the next decade, so this round of adjustment instead poses a layout opportunity.
Budget-level expectations have further strengthened this judgment. Guggenheim predicts that the US basic defense budget will reach about 1 trillion US dollars in fiscal year 2027; of these, investment accounts (which mainly cover equipment procurement and technology research and development expenses) are expected to be close to 600 billion US dollars, accounting for more than 43% of total defense spending, compared to only 32% in fiscal 2013.
For investors, the core logic is that defense companies are presenting a rare combination of “undervaluation+high revenue visibility”. According to Guggenheim statistics, the backlog of listed defense contractors in the second quarter increased 25% year over year, up 42% from the second quarter of 2024. As contractors replenish missile stocks and deploy next-generation technology, the expansion of manufacturing capacity is expected to further accelerate revenue growth.
Ten “buy” ratings: average upside of about 38%
Specifically, Guggenheim gave 10 companies a “buy” rating: Applied Aerospace & Defense (AADX.US), BWX Technologies (BWXT.US), Curtis-Wright (CW.US), Leonardo DRS (DRS.US), Karman Holdings (KRMN.US), Kratos Defense (KTOS.US), L3Harris Technologies (LHX.US), Lyntris ( LYNX.US), Mercury Systems (MRCY.US), and Northrop Grumman (NOC.US), the average target price implied about 38% room for growth.
Among them, Applied Aerospace (AADX.US) has the most impressive expected return, with a target price of $30 implying 143% upside compared to the price quoted in the report; Kaman Holdings, Lyntris, and KTOS.US (KTOS.US) implied potential increases of 79%, 60%, and 58%, respectively. Moog (Moog, MOG.A/MOG.B), Redwire (RDW.US), and York Space Systems (YSS.US) were given a “neutral” rating.
L3Harris Technologies: Preferred Large-Cap Stock with Restructuring Themes
Among large cap stocks, L3 Harris is Guggenheim's differentiated recommendation target. The agency gave it a target price of 365 US dollars, which implied 49% upward space compared to the reported reference price of 246 US dollars, and believed that in addition to the industry dividends brought about by rising defense spending, restructuring actions such as asset sales, business spin-off, and industry integration are expected to further release the company's value.
However, analysts also acknowledge that bullish logic faces multiple risks, including the November US midterm elections, pressure on the federal deficit, rising interest rates, and uncertainty about supplementary funding. Currently, the operation of the government depends only on a continuing resolution (continuing resolution) until December 11, and major budget decisions will not be settled until after the election.
Commercial Aviation: New Aircraft Manufacturing and Aftermarket Prospects Differentiated
In the field of commercial aviation, Guggenheim gave the opposite judgment on “new aircraft production” and “aftermarket”. The agency is optimistic about suppliers linked to the production of new aircraft. It is estimated that Boeing (BA.US) production will grow at a compound annual growth rate of 11% by 2030, with widebody aircraft growing at 15% and narrow-body aircraft growing at 10%. Homet Aerospace (HWM.US), Hertz (HXL.US), RBC Bearings (RBC.US), and Woodward (WWD.US) received “buy” ratings, with an average upside of about 31%.
The aftermarket is facing headwinds. Guggenheim predicts that global passenger traffic growth in 2026 will be only 1.8%, far lower than last year's 5.4%; rising ticket prices, slowing passenger flow, and the retirement of more aircraft may weaken demand for parts in the next 6 to 12 months. Therefore, AAR (AAR.US), HEI.US (HEI.US), StandardAero (SARO.US), TransDIGM (TDG.US), and VSE (VSEC.US) all received only “neutral” ratings.