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Winners and Losers in Defense Budget

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  • Description

    BB&T Capital Markets analyst Jeremy Devaney weighs in on the war over defense cuts.

  • Duration 4:18
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A new wars brewing in Washington this time over the 2013.

Defense budget.

At stake is an additional 500 billion dollars and defense cuts.

Thanks to the failure of the super committee.

So for the winners and losers in the defense budget Jeremy Dick Cheney is defense sector analyst for B -- -- capital markets joining us now hi there Jeremy.

Hi -- thanks for having me on first pleasure to have you update us on the status of the 2013 budget and whether you think -- sequestration will actually go into effect.

-- what last week the president submitted his request for the 2013.

Budget.

He knew was down about 5% year over year but the most surprising thing to us when we look through the budget was that there was no plan in place to account for sequestration.

Which which is the term that we use to describe the additional budget cuts that are -- out fall of the super committee failure -- Small.

And it doesn't seem like Wall Street believes that those cuts will go into effect either if you just look at the stock performance.

Some of the big name sad three point 6% gain for Boeing Lockheed Martin up in excess of 8% so far this year perhaps it has to do with other factors I don't know what do you think.

Then in that trader really seems that stocks are climbing the wall of worry here.

Win when we look at things we we take him very differentiated view and we believe.

That of the further budget cuts are gonna happen and that they need to be baked into.

The Ford -- minutes for -- for the largest.

Of the defense contractors those that have broad exposure to the defense budget.

And right now we're not seeing that take place do you think it's gonna -- quick and dirty turn around then forced some of -- major defense names.

And think that there definitely is downside risk to the name is -- the balance sheets are -- are the outside related to that that thesis.

So what we're recommending is that.

-- investor take a more tactical approach and really focus on high priority areas of the defense budget areas that have been labeled as priority.

By the defense department for instance unmanned aerial vehicles and intelligence surveillance and reconnaissance.

Two names in particular Aerovironment ticker AV AV.

We have a buy rating and 38 dollar price target.

In Flir Systems ticker half ally are we've got 32 dollar -- you have 32 dollar price turn -- -- -- there.

Does this to do with all this talk of additional drones -- companies work with.

44 Aerovironment that's correct today they provide small unmanned platforms system called the raven and another system called the puma.

There -- launched you can carry them in a backpack.

Typically they're they're use by soldiers on the front lines but they're also being examined for deployment in domestic air space there is a recent FAA bill.

Then that's mandating that.

The increased use in the US.

Two to allow for DHS.

Customs and Border Protection services.

In a few other agencies to participate.

And the risks for these names -- and Aerovironment.

It's clear clear and -- the risk risks are are.

Actually that that there will be deeper and deeper cuts right now we don't see these names being exposed to to the additional cuts as -- out fall.

Of the budget control act.

But when we look out further if this Malays continues beyond -- -- thirteen if we see another down year in fourteen.

-- firm perhaps they they could take a hit you know Flir Systems it allows the military to do more his last day they really allow the military to lever.

The the soldiers on the front -- get more performance out of them because they're passive sensor that allows that ended the coroner to be guarded it with fewer soldiers.

And Jeremy what are your thoughts on the lower defense -- and what it means for US safety overseas especially when we see day after day he's hot spot Syria.

You rhyme Afghanistan and Iraq obviously eaten DET think this is a good idea or bad idea are more -- We we would agree with a lot of the think tank said that the security environment hasn't changed a whole lot but that being said we're not political analyst for financial analyst fare so we immediately we.

We we we certainly see the risk environment is is as -- -- so aids.

There there's plenty of opportunities for.

Increased military engagement.

In cutbacks in defense and our opinion we we'd probably be.

In adverse action.

-- things like -- today any.

Appreciate the time thank you at.

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