We recently compiled a list of the 8 Best Military Drone Stocks To Buy According to Analysts. In this article, we are going to take a look at where Honeywell International Inc. (NASDAQ:HON) stands against the other military drone stocks. We also dive into unmanned aerial vehicle (UAV) industry trends.
Demand for military drones has surged over the last few years amid deadly escalations breaking out in different parts of the world. These unmanned aerial vehicles (UAV) were a prominent feature in the 2020 conflict between Azerbaijan and Armenia in the Nagorno-Karabakh region. They have also been clouding the skies in Kyiv, Kharkiv, and Borodyanka as the Russia-Ukraine war approaches the 1000-day mark, with no immediate end in sight.
READ ALSO: 10 Countries with the Most Military Drones in the World and 7 Most Undervalued Defense Stocks To Buy According To Analysts.
UAVs offer an unprecedented bird’ s-eye view of the battlefield, making it difficult for enemy targets to move and hide from the theatre of war. An increasing number of countries are actively deploying military drones within and outside their borders for intelligence, reconnaissance, surveillance, and target operations, in what is being seen as the arrival of a new threat in the aerial defense space.
According to a report, the drone industry was valued at $30.2 billion in 2024 and is projected to reach $48.5 billion in 2029, at a CAGR of 9.9% during this period. This has already been a healthy year for the drone market. For perspective, a major ETF issued by AdvisorShares has gained 15.46% YTD, outperforming the broader market by two percentage points. The market’s growth is fueled by the need for enhanced aerial security and the advancements in technologies being made in the UAV industry.
There is active work ongoing in building drone defense systems as well to guard countries against the threats posed by UAVs. In early October this year, the Department of Defense (DOD) awarded a $250 million contract to Anduril Industries to counter drone attacks against American forces. Under the contract, the US will receive 500 recoverable Roadrunner interceptors.
Roadrunners are reusable drones that can intercept incoming drones or land back on the ground if they are not engaged. Anduril did not name the DOD customer for security concerns, however, the company stated that the contract would serve the American military in ‘priority regions where U.S. forces face significant UAS threats’.
Anduril Industries also recently unveiled a new, autonomous drone called Bolt after the success of similar products in Ukraine. The vertical takeoff and landing (VTOL) autonomous vehicle will provide militaries with capabilities for a range of missions, from ISR to search and rescue. The drone also comes with a munition variant, called Bolt-M, to arm ground troops on the battlefield by making quick and precise strikes.
Compared to the use of costly and vulnerable fighter jets, loitering munitions after surveying the area through unmanned aerial vehicles has proven much more effective in the ongoing war between Russia and Ukraine, resulting in a surge of demand for military drones. With that said, let’s shift our focus now on the best military drone stocks to buy according to analysts.
Methodology
We sampled stocks from ETFs with military drone exposure and our own previous related articles on the subject. Then we narrowed down the list to the eight top stocks preferred by analysts, basing our rankings on their median share price upside potential and the number of analysts who had made projections about these companies, as of October 25, 2024.
We first ranked the stocks on each of these two metrics and followed it up by assigning the two metrics their respective weights, which were 40% for the median share price upside potential and 60% for the analyst count. This was followed by calculating the weighted ranking for each metric, and then aggregating the two to get an overall weighted ranking score. The 8 Best Military Drone Stocks To Buy According to Analysts are ranked in descending order of these weighted rankings.
Since only a few public companies are operating in the military-drone industry, we did not have a lot of choices for stocks, and one of these stocks had a negative median upside so we ranked it on a positive mean upside instead, which was based on the contribution of 5 analysts. This stock’s mean share price upside potential was assigned a weightage of 40% as well.
For added perspective, we also mentioned the sentiment of the hedge funds towards each stock from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A shot of a commercial plane with a blur of color in the background, representing the production of auxiliary power units in the Safety and Productivity Solutions segment.
Honeywell International Inc. (NASDAQ:HON)
Median Share Price Upside Potential: 4.33%
Total Analysts: 11
Number of Hedge Fund Holders: 50
Weighted Ranking: 5.2
Honeywell International is an American conglomerate that helps organizations address their most complex challenges in aviation, automation, and energy transition through its four business segments – Aerospace Technologies, Building Automation, Industrial Automation, and Energy and Sustainability Solutions.
The company is an important player in the military drone market. In September this year, Honeywell International Inc. (NASDAQ:HON) unveiled its Stationary And Mobile UAS Reveal And Intercept system, which has been selected by the U.S. Air Force’s Global Strike to counter swarm drones and protect critical assets. The demonstration is expected to take place in January 2025.
On October 17, Honeywell signed a Memorandum of Understanding (MOU) with Merlin Labs aimed at bringing autonomy to a variety of military aircraft. Under the agreement, Honeywell Anthem’s advanced avionics suite will be integrated with Merlin’s non-human pilot system, called Merlin Pilot, to reduce pilot workloads during special missions. The collaboration between the two companies will initially be focused on fixed-wing military aircraft, before expanding to other commercial and military planes.
Honeywell International Inc. (NASDAQ:HON) announced its third-quarter 2024 results on October 24. Sales for the quarter were posted at $9.7 billion, which was up 3% but fell short of expectations due to project delays, a flat performance in Industrial Automation, and supply chain disruptions. The figure was also impacted by manufacturing disturbances caused in September by Hurricane Helena and a fire at an aerospace technology plant.
Despite these challenges, the company logged an EPS of $2.58, growing 8% year-over-year, and beating expectations of $2.52 per share. This was owed to a strong performance by Honeywell in its Aerospace Technologies business. The segment recorded its ninth successive quarter of double-digit organic growth, with sales increasing 10% year-over-year.
The company has successfully closed four acquisitions this year valued at over $9 billion, including two in the recently concluded quarter, those of CAES Systems Holdings LLC and Air Products’ LNG Business. These acquisitions are set to enhance Honeywell’s portfolios in defense and energy solutions businesses and open new revenue streams.
Looking ahead, the American conglomerate has forecast sales to be between $10.2 billion and $10.4 billion for Q4, up 2% to 4% organically, and expects the gains to be driven by its Aerospace business. Full-year sales are anticipated to be in the range of $38.6 billion to $38.8 billion. Honeywell is one of the best military drone stocks to buy according to analysts, with a median upside potential of 4.33% in its share price. Wall Street analysts also have a consensus on the stock’s Buy rating.
Overall HON ranks 6th on our list of the best military drone stocks to buy according to analysts. While we acknowledge the potential of HON as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
