NATO Is Taking Up Arms. These ETFs Stand to Gain.
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Dec 11 2024
0mins
Should l Buy LHX?
Source: Barron's
Increased Defense Spending: The ongoing war in Ukraine has prompted Western countries, particularly NATO members, to significantly increase their military spending, with experts predicting this trend will continue as nations aim to fulfill defense obligations and restock munitions.
Investment Opportunities: Investors are encouraged to consider defense-focused exchange-traded funds (ETFs) that track stocks of military contractors, as global military spending reached $2.4 trillion last year, with the U.S. leading in expenditures.
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Analyst Views on LHX
Wall Street analysts forecast LHX stock price to fall
14 Analyst Rating
11 Buy
3 Hold
0 Sell
Strong Buy
Current: 339.900
Low
212.00
Averages
253.50
High
280.00
Current: 339.900
Low
212.00
Averages
253.50
High
280.00
About LHX
L3Harris Technologies, Inc. provides end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. Its segments include Space & Airborne Systems (SAS), Integrated Mission Systems (IMS), Communication Systems (CS), and Aerojet Rocketdyne (AR). The SAS segment supplies full mission solutions as a prime and subsystem integrator in the space, airborne and cyber domains. The IMS segment delivers differentiated mission capabilities and prime systems integration to support intelligence, reconnaissance and surveillance (ISR), passive sensing and targeting, electronic attack, autonomy, power and communications, networks and sensors. CS enables warfighters across all domains with solutions critical to mission success even in the contested environments. The AR segment provides propulsion, power and armament products and systems to the U.S. Government, including the DoD, NASA and various aerospace and defense prime contractors.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Successful Interception Record: The THAAD system boasts a 100% success rate in 17 interception tests since production began, underscoring its critical role in defending against short, medium, and intermediate-range missiles, thereby solidifying L3Harris's leadership in defense technology.
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- Significant Contract Value: L3Harris Technologies has secured a nearly $400 million contract to produce additional solid rocket boost motors and Liquid Divert and Attitude Control Systems (LDACS), enhancing the THAAD system for the Missile Defense Agency and ensuring national security.
- Successful Interception Record: The THAAD system boasts a 100% success rate in 17 interception tests since production began, underscoring its critical role in defending against short, medium, and intermediate-range missiles, thereby solidifying L3Harris's leadership in defense technology.
- Milestone Early Delivery: In 2024, L3Harris delivered its 1,000th solid rocket boost motor and 1,000th LDACS ahead of schedule, demonstrating its efficient production capabilities and rapid response to customer needs, which enhances client trust.
- Manufacturing Base Distribution: L3Harris manufactures THAAD solid rocket boost motors in Huntsville, Alabama, and Camden, Arkansas, while LDACS are produced in Los Angeles, ensuring production flexibility and supply chain stability.
See More
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- Contract Announcement: Harris Technologies has secured a $400 million contract for the development of the HAAAD system.
- Project Significance: The HAAAD system is expected to enhance defense capabilities and contribute to national security initiatives.
See More
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- Rapid Defense Budget Growth: The U.S. defense budget has surpassed $1 trillion, with NATO countries expected to increase core defense spending to 3.5% of GDP by 2035, potentially adding around $370 billion in spending from non-U.S. NATO members, indicating a robust growth trend in defense budgets.
- Potential $1.5 Trillion Budget: At a recent Defense Outlook Forum, retired Gen. Arnold Punaro expressed optimism that the U.S. defense budget could grow to $1.5 trillion, representing a roughly 50% increase from fiscal 2026 levels, although analysts remain cautious about the feasibility of such growth.
- AI and Automation in Warfare: The Department of Defense emphasizes the increasing importance of automation, autonomy, and artificial intelligence in warfare, pushing contractors to enhance output, reduce costs, and build a lasting software advantage, which could enable defense firms to achieve margins similar to those in commercial aerospace or technology sectors.
- Valuation Concerns for Defense Stocks: Despite a nearly 100% rally in defense stocks raising valuation concerns, this surge appears grounded in fundamentals, as governments commit to multi-year budget increases, geopolitical tensions remain high, and global missile and munitions inventories are depleted, making defense a clear policy priority for the U.S. and NATO allies.
See More
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- Surge in Investments: The Trump administration has made unprecedented equity investments in at least 10 companies over the past year, including critical minerals and chipmakers, aiming to build a domestic supply chain and reduce reliance on China, indicating a proactive government role in economic strategy.
- U.S. Steel Golden Share: The administration secured a golden share in U.S. Steel as a condition for approving Nippon Steel's acquisition, granting the president veto power over key business decisions, which ensures stability and growth in the U.S. steel industry, reflecting direct government intervention in vital sectors.
- Strategic Deal with MP Materials: The Defense Department struck a landmark deal with MP Materials, investing $400 million in preferred stock with rights to purchase additional shares, positioning the Pentagon as the largest single shareholder and further solidifying U.S. dominance in the rare earth mining sector.
- L3Harris and Defense Partnership: L3Harris announced a proposed partnership with the U.S. government, where the Pentagon will invest $1 billion in its rocket motor business, with plans for an IPO in the second half of 2026, allowing the Pentagon's investment to convert into common equity, enhancing the capital base of the defense industry.
See More
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Increased Production Focus: The Defense Department is prioritizing the rapid increase of weapons production to meet growing demands.
Response to Global Threats: This initiative is part of a broader strategy to address emerging global security threats and enhance military readiness.
See More
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- Contract Value: L3 Technologies has been awarded a $283.3 million ID/IQ contract aimed at providing ground control element support and sustainment services, which will significantly enhance its market position in the defense sector.
- Service Scope: The contract encompasses the necessary logistics support and sustainment services required to maintain and enhance the performance of element systems and ancillary capabilities, ensuring long-term system reliability and operational effectiveness.
- Project Location and Timeline: Work will be performed in Salt Lake City, Utah, and is expected to be completed by January 29, 2031, providing the company with a stable revenue stream over the long term.
- Funding Allocation: At the time of the award, $3.5 million from the Fiscal 2026 operations and maintenance funds will be obligated for this project, indicating government commitment and its positive impact on L3 Technologies' future financial performance.
See More
