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 Northrop Grumman Corporation (NYSE:NOC) 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).
An aeronautics engineer inspecting a model aircraft engine in a factory setting.
Northrop Grumman Corporation (NYSE:NOC)
Median Share Price Upside Potential: 8.79%
Total Analysts: 16
Number of Hedge Fund Holders: 49
Weighted Ranking: 2.8
Northrop Grumman is one of the largest defense contractors in the world. The company is the manufacturer of the B-21 Raider for the United States Air Force (USAF), which was formally unveiled in December 2022. The long-range, stealth strategic bomber, intended to replace the aging fleet of the B-1B Lancer and B-2 Spirit, is scheduled to enter service from the mid-2020s onwards.
The company is also a leader in autonomous aerial systems and is the maker of the RQ-4 Global Hawk unmanned aircraft system, which has amassed over 320,000 flight hours, and is noted for its role in surveillance and intelligence operations in Afghanistan, Iraq, and parts of North Africa. In April this year, Northrop Grumman Corporation (NYSE:NOC) was awarded a $387 million foreign military sales contract from the DOD to sustain Italy, Japan, and South Korea’s RQ-4 Global Hawk drones.
It also developed the MQ-4C Triton, which is one of the most advanced maritime ISR UAVs deployed today. The drone has immense export potential. Australia received its first of four ordered Triton drones in June this year, with the remaining three still in production. Kathy Warden, NOC’s Chair, CEO, and President, stated the following about Tritron’s growth prospects in the Q2 2024 earnings call on July 25:
We are excited that both NATO and Norway have expressed interest in Triton, and we are hopeful that announcements will be coming shortly on both. And as we look to build Triton for the U.S. and Australia, this simply adds to the production line outlook for Triton through the decade. And so we had envisioned this day coming where more countries would get the opportunity to see Triton once it was fielded has a tremendous ability to surveil large areas of the ocean. You can think of the relevance to that in the Pacific, which is what was attractive to Australia and the U.S. Navy, but of course, in the Arctic, this is an area of great importance as well, which is driving to NATO and the Norwegian interest.
The company declared its third quarter 2024 results on October 24. It posted sales of approximately $10 billion, up 2% from last year, driven by a surge in demand for advanced weapons amid intense escalations in the Middle East and the Ukraine-Russia war. Aeronautics Systems revenue grew 4% year-over-year to $2.9 billion, with gains attributed to higher F-35, E2, and Triton volumes.
Sales at Defense Systems expanded by 2% due to higher sales of Sentinel and other weapons from NOC’s portfolio. Mission Systems also registered a 7% increase in its sales, fueled by a higher volume of microelectronics and advanced technology programs. As a result, Northrop Grumman Corporation (NYSE:NOC) posted an EPS of $7, comfortably beating expectations of $6.08 per share.
The company reaffirmed its full-year 2024 sales guidance to between $41 billion and $41.4 billion from the second quarter. However, it has raised its MTM-adjusted EPS guidance to be in the range of $25.65 – $26.05, up from $24.90 – $25.30 at the end of Q2. Northrop Grumman Corporation (NYSE:NOC) is one of the best military drone stocks to buy according to analysts, with a consensus among Wall Street experts on its Buy rating.
Overall NOC ranks 2nd on our list of the best military drone stocks to buy according to analysts. While we acknowledge the potential of NOC 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 NOC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.