US defence industry faces heightened demands amid global conflict
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Washington: Amid escalating conflicts worldwide, the US defence sector is experiencing a surge in demand, prompting expectations of continued growth in defence company stock values, according to analysts.
Following Russia's invasion of Ukraine, the Pentagon urged leading defence contractors to escalate production, igniting concerns about surplus weaponry post-conflict. Fast forward nearly two years, and these companies are now forecasting robust demand in 2024. The US and its allies are actively seeking costly weapons and munitions, responding to perceived heightened aggression from Russia and China, reported Reuters.
A significant surge in demand for missile defences, exemplified by the Patriot interceptors used by the US Army, highlights the industry's growth trajectory. Production of these interceptors is set to increase from 550 to 650 annually, potentially translating to a substantial $400 million boost in yearly sales for this system alone, priced at $4 million per projectile.
The anticipated rise in demand is expected to significantly benefit major defence firms such as Lockheed Martin, General Dynamics, and Northrop Grumman, whose stock values have consistently outperformed the S&P 500 index for the past two years. Projections suggest a 5% to 7% increase in their shares over the next year, outpacing the anticipated modest growth of the S&P.
Eric Fanning, CEO of the US Aerospace Industries Association, noted that US weapons stockpiles were not at capacity before the Ukrainian conflict. The current demand surge stems from concerns about stockpile depletion and is driven by perceived Chinese and Russian aggression, as well as support for Middle Eastern allies.
The surge in demand extends across various components of defence systems. Manufacturers such as RTX and Lockheed Martin are expected to witness increased production of radars, ground systems, and missile interceptors like the Patriot systems.
Solid rocket motors, crucial components in high-demand arms since Russia's invasion of Ukraine, are witnessing substantial demand growth. Northrop Grumman and L3Harris Technologies, major rocket motor manufacturers, reported increased demand due to the conflict's impact on guided missile systems like the Guided Multiple Launch Rocket Systems (GMLRS).
Lockheed Martin, a prime contractor for Patriot interceptors and GMLRS, highlighted the necessity for substantive munition stockpiles, reflecting the sustained need for increased production and supply.
