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Citi aerospace & defense analyst Jason Gursky on how government cuts to defense spending will impact the defense industry.
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If you very much well the defense sector is gearing up for a jam packed their earnings week of the industry braces for steep cuts in defense spending.
Joining us now on -- Fox Business exclusive from San Francisco is Jason good escape.
Aerospace and defense analyst at Citi and Jason thank you so much -- joining us this often and we just mention some steep but.
Defense spending cops what does but due to the defense sector as a whole.
Well here in the near term not a lot to be perfectly honest with you most of these companies have backlogs that reach out several years they are on a lot of programs that are going to be seen through over the next several years.
In the near term though it does create some.
Some pressure from a sentiment perspective -- we watch the president and the secretary of defense talk about how they're going to.
Affect the quote unquote cuts that are gonna come out of the budget control act from late last year.
The right here right now as far as you know this we can move in earnings and outlooks.
Not expecting any big big surprises to the downside -- this suggest the we've got a couple years -- the backlogs here.
Revenues are gonna be flat -- going forward in maybe some earning surprises off of better margins as international.
Sales -- for these guys and they buy back a lot of stock which to extend your earnings right here share count and therefore allows your earnings per share to grow so net net not any big surprises here on the come.
OK let's let's talk about some individuals -- -- You just raise your price target on Boeing -- -- from 82 dollars and 87.
Mostly a profit expectations of this year and next what are you looking for from Boeing tomorrow.
I think the three things that people are gonna be focused on our cash flows what they had to say about the future cash flows they've been building a lot of inventory over the last several years.
On these development programs particularly the 787.
-- wanna get a sense of how much cash they're not gonna start generating -- my expectation is that it's going to be a lot of it.
And then as we move through the year gonna here that talk about dividend increases in share repurchases.
Becoming more important for them and then the second two things are orders which are gonna be really strong this year.
Given the fact that they -- have a product to sell the narrow body space with a 737 Max.
And then lastly production rates as everybody knows they're trying to ramp production on the 787 pretty seriously over the next couple of years.
I think they're gonna have positive things to say on all three of these things and I expect the stock to trade pretty well after earnings.
Very good -- that's Raytheon and Lockheed -- in non.
Both releasing their earnings this week you expect both to do well how are they doing in this well frankly tough defense environment.
You know -- on a relative basis they're doing pretty well both -- these companies have got things that are in development that are moving into.
Into production particularly the F 35.
Raytheon has got a lot of sales.
Overseas particularly in the Middle East where.
Demand for missile defense programs or product in particular -- pretty popular at this point.
They've both as they suggest -- -- got some development program shifting into production in wind things shipped into production margin rates actually do pretty well.
So I expect them to talk about you know the tough environment from a revenue perspective but for margins to be pretty good.
And then they're generating all kinds a great -- expect dividend payouts and share increases as a share buybacks.
To increase for these two companies this year as well so overall despite the tough environment for the these are looking from the outside a tough environment expect them to do pretty well.
All right pretty bullish have big week no doubt -- the defense sector thank you so much Jason gusty aerospace and defense analyst at Citi.
Talking to us from beautiful San Francisco all right Jason thank you very much.
Let's take a look at the biggest winners and losers in the defense sector over the costs -- Textron by the way.
Is the biggest loser of the group's shares down nearly 20% the company.
Makes Cessna jets as well as military helicopters -- armored vehicles -- and weapons.
Goodrich is the best before -- all of the sector it is up 36%.
Over 52 weeks Goodrich by the way specializes in flight performance systems and at -- -- shares are hitting a multi year high today as well.
And the Dow Jones aerospace and defense ETF also up.
Almost 3% over the past year this fund includes companies like Boeing.
Raytheon Lockheed Martin and Northrop but Grumman so if you wanna buy them as a whole and ETF.
