Armed conflict does not necessarily benefit defence contractors fundamentally, especially if the conflict is prolonged and expensive, says Owens, maintaining his fair value estimates on names like General Dynamics, Lockheed Martin, Northrop Grumman and Bombardier.
Shares of global defence contractors appreciated as much as 4% after Israel launched a series of strikes against Iranian facilities and personnel on June 13, but Morningstar Equity Research analyst Nicolas Owens calls this rally an “exaggerated reaction” to news of renewed conflict in the Middle East.
“As we have pointed out before, the dots between military combat and the profit of a defence contractor do not connect nearly as directly as investors seem to imagine,” writes Owens in a recent note.
