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Outlook for Defense Sector

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    Robert Spingarn of Credit Suisse weighs in on the defense and aerospace sectors.

  • Duration 2:39
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Will be -- -- A -- defense sector in the midst of reporting third quarter earnings and a common -- between each report is the risks surrounding uncertainty are -- -- cuts to US defense spending but.

Could the election lift this cloud over the sector here -- -- Roberts thing -- global head of aerospace defense equity research at Credit Suisse are welcome to you.

-- the threat of sequestration the -- Cuts in defense spending that come along with -- it's in the room to your forecasting is -- you must just wish we could just get past that one where the other.

Well it's very difficult not so much of an earnings perspective in the near term because most of these cuts that they should happen.

Actually lagged by a couple of years but from a sentiment perspective -- certainly weighing on multiples.

So tell me -- earnings reports came in -- -- that Lockheed Northrop Grumman general dynamics it with their overriding theme.

There is a theme and -- been continuing all year what we're seeing is.

Weaker revenues given the uncertainty we think that -- those in Washington are somewhat more cautious with the allocation of funds but what we're seeing.

As a big offset to that are higher margins which are driving earnings beats and raises across the company's so isn't that -- would you say from an investor's perspective.

Well we're recommending -- Raytheon for example which reports tomorrow morning.

What we like about Raytheon is it's not so much for prime contractor -- therefore has less headline risks to specific program platform cuts for ships and planes for example.

It's more of a tier one supplier of higher and electronics we think that -- a -- of the value chain.

Is more resilient fairly attractive.

And plus it's -- a high -- high percentage of international business the highest among the here's what kind of technology in aerospace and defense is most in demand right now.

Well with something we call C four I SR it's intellicast electronics.

Its surveillance reconnaissance computers communications anything that has to do.

We're getting data and information to the war fighter.

Robert I noted that your research points to Romney victory as being more beneficial to the defense and aerospace sector so are you.

Putting out kind of two different outlook seemed to sort of waiting until after the election.

I think there's a prudence and waiting to some extent we really are no better position to predict the election and anybody else is we understand this can go in both directions.

It's interesting though to try and figure out what is priced into the stocks.

And sequestration has certainly been dominating.

On that front.

We do think that the market is generally discounting some alternatives equipment sequestration post election regardless of who wins some kind of negotiated outcome.

But it remains to be seen what will happen there.

Okay we're updated thank you -- -- guard Credit Suisse thank you.

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