Energy sensitive inflation is back in focus as oil and gas prices feed into policy debates and consumer budgets. That spotlight on security and supply puts Aerospace and Defense stocks on many watchlists, since governments tend to treat defense and critical infrastructure as priority spending. This article explains why that theme matters now and highlights 3 Aerospace and Defense screener picks worth a closer look.

The 3 Aerospace and Defense stocks below are just a sample. The full screen surfaced 73 more companies with equally compelling narratives that are not covered here. To identify and analyze those additional ideas, head straight into the Aerospace And Defense screener.

Redwire (RDW)

Overview: Redwire is a space infrastructure company that designs and manufactures mission critical hardware such as star trackers, sun sensors, RF payloads, antennas, spacecraft platforms, and in-space manufacturing facilities for government and commercial space programs. Alongside these space focused systems, it also provides digital engineering software, microgravity payloads, uncrewed airborne systems, and other defense and biotech related solutions.

Operations: Redwire generates roughly US$208.9 million from its Space segment and US$217.4 million from Defense Tech, with revenue primarily from the U.S., supported by Europe and other international markets.

Market Cap: US$3.0b

Redwire provides direct exposure to demand for space infrastructure and defense related payloads, from phased array antennas and RF systems for warfighter communications to spacecraft platforms and digital engineering tools. Recent contract wins with U.S. and NATO defense customers and record backlog highlight interest in its technology. At the same time, the company is still loss making, carries funding and dilution risks, and relies heavily on complex government programs. For investors willing to accept volatility and execution risk, Redwire’s mix of space manufacturing, defense UAS and microgravity pharma projects represents a differentiated way to access the Aerospace and Defense theme. A key consideration is how effectively it can convert backlog and new facilities into sustainable earnings.

Redwire’s record backlog and broad space to defense exposure could be masking a very different risk to reward profile than many investors assume. Get the full story in the 2 key rewards and 3 important warning signs (2 are major!)

General Electric (GE)

Overview: General Electric, operating as GE Aerospace, is a global engine and aircraft systems specialist that designs, builds, and services commercial and military jet engines, along with related avionics, power systems, and spare parts. Its strongest link to the Aerospace and Defense theme is this engine and propulsion business, which supports airlines and defense customers through long term maintenance, repair, and overhaul contracts.

Operations: GE Aerospace generates the bulk of its revenue from Commercial Engines & Services at about US$37.7b, with a further US$11.5b from Defense & Propulsion Technologies and US$1.4b from Corporate & Other.

Market Cap: US$361.5b

GE Aerospace gives you exposure to the engines that keep both commercial fleets and military aircraft flying, with two segments that tie directly into the Aerospace and Defense theme through long life MRO contracts and a large installed base. The company’s services heavy model, growing backlog, and defense propulsion work on programs such as advanced fighter engines and missile propulsion support recurring cash generation and higher margin work. In addition, partnerships in areas like silicon carbide power modules indicate ongoing technology investment. On the other hand, high leverage, a premium valuation, and heavy dependence on aviation cycles and complex new engine ramps leave little room for execution missteps. As a result, many investors look deeper into how sustainable this engine and services story is before making a decision.

GE Aerospace’s engine and services story is closely tied to long-term contracts and a large installed base, yet many investors still treat it as a black box. Get the analysis report for General Electric for insight into the crucial moving parts they might be missing.

Kratos Defense & Security Solutions (KTOS)

Overview: Kratos Defense & Security Solutions is a defense technology company focused on unmanned aerial systems such as jet powered drones and loitering munitions, along with the propulsion systems that power those platforms for the U.S. Department of Defense and allied agencies, supported by satellite ground systems and microwave electronics for missiles, radar, and space operations.

Operations: Kratos generates about US$317.4 million from its Unmanned Systems segment and US$1.2b from Kratos Government Solutions, with revenue largely tied to U.S. government and national security customers.

Market Cap: US$10.7b

Investors looking at Aerospace and Defense should pay attention to Kratos Defense, which is tightly linked to modern warfare needs through its tactical drones, missile and hypersonic propulsion, and satellite ground systems. Recent contracts on long range missile engines, the Valkyrie unmanned aircraft and hypersonic payload integration facilities point to growing program depth and a larger role in future defense procurement. At the same time, heavy investment ahead of full scale awards, reliance on a few key suppliers, and a premium valuation leave little margin for disappointment if awards slip or costs rise. With earnings growth but uneven free cash flow, the key question is whether Kratos can turn today’s contract momentum into durable, high quality cash generation over the next few years.

Kratos Defense appears to be at a point where contract momentum and premium expectations are starting to decouple. Before assuming the story is entirely positive, review the 2 key rewards and 1 important warning sign to better understand how that balance of risk and reward might apply to your situation.

Seeking Alternatives Before Everyone Else?

Fresh themes can gain momentum quickly while laggards risk falling behind. Use curated stock shortlists to identify potential opportunities early and consider your next steps.

• Explore early-stage growth stories with real balance sheet strength by scanning the curated 18 high quality undiscovered gems, which are still under the radar for now.
• Review durable cash generators by examining a hand picked list of solid balance sheet and fundamentals (51 results) before wider market attention potentially affects their pricing.
• Focus on long term income by reviewing carefully filtered 12 dividend fortresses while yields remain appealing and interest in them is still developing.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.