LMT, RTX, NOC - US market's Recession hedge ?

JC888
04-23

US stocks finished sharply higher on Tue, 22 Apr 2025:

  • On rising optimism that trade tensions between US and China could soon ease. That’s according to US Treasury Secretary.

  • When Trump confirmed that he has no plan to fire Fed chair, Powell. (see below)

What Bessent Said ?

At a closed-door event hosted by JPMorgan Chase, Treasury Secretary Bessent told investors that he expects de-escalation in the trade spat with China, as first reported by Bloomberg.

Firstly, this is only what Bessent “expected” unilaterally.

Since 11 Apr 2025, both China and the US have signaled openness to talks, but actual negotiations have not yet restarted.

Both sides are waiting for the other to take concrete steps to create the right conditions for dialogue.

In short, it would be ‘foolish’ to pin too much hope over what Bessent has whispered.

No Plans To Fire But…

Trump backtracked because if he decides to challenge the 112 years old US statute, it could spur an unsettling sell-off in (a) stocks, (b) government bonds and (c) the US dollar.

While Trump’s comments alleviated immediate concerns about Mr. Powell’s fate, his administration is currently testing its ability to challenge the legal safeguards that protect the Fed’s political independence.

Lastly, as Briefing.com, Analyst, Patrick O’Hare put it succinctly:

  • Trump would not fire Mr Powell, also because he’s “simply setting Powell up to take the blame in the event of an economic downturn.

By the time 4pm came around:

  • DJIA: +2.66% (+1,016.57 to 39,186.98).

  • S&P 500: +2.51% (+129.56 to 5,287.76). Posted 4 new 52-week highs and 1 new 52-week low.

  • Nasdaq: +2.71% (+429.52 to 16,300.42). 3,580 stocks rose & 796 fell as advancing issues outnumbered decliners by a 4.5-to-1 ratio.

Trading volume on US exchanges was 15.21 billion shares. This is less than the 18.94 billion average from the past 20 days.

This shows that investors are still waiting and watching.

Which type of investors are these - institutional or retail or high-net worth (HNWs)?

While US market rejoiced and recover based on the two pieces of good news, the same could not be said for US defense stocks, that reported their quarterly earnings on the same day.

The two US defense stocks are (a) $Northrop Grumman(NOC)$ and (b) Raytheon $RTX Corp(RTX)$ .

Northrop Grumman (NOC) reported a weaker than expected Q1 2025 earnings.

  • Revenue: came in at $9.47 billion vs analysts’ consensus of $9.92 billion vs Q1 2024’s $10.13 billion, marking a -6.52% YoY decline. (see above)

  • Earnings per share: was $3.32 vs market forecasts of $6.32 vs Q1 2024’s $6.32. This was a -47.47% YoY decline. (see below)

  • The severe decline in NOC’s earnings per share was due largely to “B-21 LRIP loss provision”; where the fixed-price contract signed in 2015 was underpriced due to increased in manufacturing costs.

The substantial fall was attributed to lower sales across all its business segments:

  • Aeronautics Systems.

  • Defense Systems.

  • Mission Systems.

  • Space Systems.

  • Intersegments eliminations.

FY 2025 Guidance.

On a brighter note, the aerospace & defense company has reported a record backlog of $92.8 billion, reflecting strong demand and robust order activity, particularly in international markets.

NOC has kept its Revenue and Free cash flow (FCF) forecasts unchanged. (see above)

However, it has revised downwards its Segments operating income and Earnings per share.

As expected, this did not sit well with Wall Street.

  • On Tue, 22 Apr 2025, NOC slumped -12.7% after (a) a sharp drop in profit and (b) a cut in full-year guidance & reported earnings that missed analysts’ expectations.

Raytheon Techologies (RTX).

Aerospace and defense company Raytheon Technologies reported strong Q1 2025 results:

  • Revenue: came in at $20.3 billion vs analysts’ estimates of $19.8 billion vs Q1 2024’s $19.31 billion. This marked a +5% YoY gain.

  • Earnings per share (adjusted): was $1.47 vs Wall Street’s expectations of $1.37 vs Q1 2024’s $1.28. This marked a +14.83% YoY gain.

  • Net income (adjusted): reached $2.0 billion vs Q1 2024’s $1.71 billion, a +16.96% YoY gain.

Results exceeded Wall Street’s expectations.

However, GAAP net income and EPS were lower than last year due to acquisition and restructuring charges.

Also comparatively speaking, growth rate slowed when compared to a year ago where revenue grew +12%.

Concerns.

Thanks to Trump’s tariffs policy, RTX Corp is expected to face about $850 million in extra costs due to tariffs in 2025.

These tariffs could hurt the company’s profits if they stay in place.

However, RTX has not included these possible tariff costs in its financial outlook for the year because the situation is still uncertain.

The tariffs chaos will likely impact its supply chain workflow, impacting operational efficiency.

The company is also monitoring the dynamic global trade environment, which poses risks to its operations and financial performance.

Taking the earnings and concerns into considerations, RTX fell by -9.81% to $113.75, on a day when all US composite indexes spiked like there was no tomorrow.

Defense Stock Take.

Of the Top 5 defense stocks, 3 have reported their earnings. Remaining 2 will hand in theirs today. (see below)

Are veteran defense stocks still a “Buy” OR are they “making way” for new entrants like Palantir (PLTR)$, SES AI Corporation (SES)$, … etc.

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  • Do you think veteran defense stocks are still worthy investment ?

  • Do you think new defense entrants will overtime displace the veterans ?

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Comments

  • Tiger_CashBoostAccount
    04-24
    Tiger_CashBoostAccount
    Great job on your latest stock market success! Your commitment to research and analysis is evident in your results.Trade with Tiger Cash Boost Account and use contra trading toenhance your strategies."Welcome to open a CBAtoday and enjoy access to a trading limit of up to SGD 20,000with upcoming 0-commission, unlimited trading on SG, HKand US stocks. as well as ETFs.
    • JC888
      Hi, thanks for reading. Glad you liked it.
  • JC888
    04-23
    JC888
    Hi, tks for reading my post. I make time to write & share.
    Pls "Re-post" so that more get to know. Tks! Rating is important (to me).
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