Deutsche Bank is bullish about the defence sector heading into 2017, and thinks the recent election of Donald Trump as US President will continue to have a positive influence on the sector.
The City heavyweight said it remains ‘overweight’ on the sector globally and thinks stocks such as BAE Systems PLC (LON:BA.) and Lockheed Martin (NYSE:LMT), among others, will see their share prices rise in the coming months.
“2017 marks the start of a return to growth in US defence outlays. Post Trump, growth will increase and our US Department of Defense weapons have been raised,” said analysts at Deutsche.
“Defence stocks have already seen rating expansion but we believe this re-rating can continue to play out.”
The banking giant has repeated its ‘buy’ recommendation for BAE and upped its target price to 660p, explaining that the British firm has “come through the defence downturn with its cost base in good shape”.
BAE should return to organic growth from 2016/17, while Deutsche reckons the defence recovery is still not fully priced in on the stock.
Across the pond, Lockheed Martin also gets the nod from Deutsche analysts, who have set a US$300 target for the stock.
They reckon Lockheed is the “biggest paly to the US defence spending inflection” in this post-Trump world, while the firm’s free cash flow is yield is the highest of its peers and on track to hit the US$5bn mark this year.
Deutsche’s other global top picks in the sector include Italian firm Leonardo Finmeccanica and US aerospace and defence outfit Orbital ATK.