3 Aerospace-Defense Stocks to Watch Amid Supply-Chain Constraints

The aerospace and defense industry is experiencing strong growth momentum, driven by rising global air travel and increased defense spending. Rising global air travel and a proposed 13% increase in the U.S. defense budget are driving stronger demand and growth opportunities for aerospace and defense manufacturers. However, persistent supply-chain issues might restrict growth, with aircraft deliveries still 30% below peak levels and backlogs at record highs, pressuring smaller aerospace suppliers. The leading companies in the aerospace-defense industry that you might want to keep an eye on are GE Aerospace GE, General Dynamics GD and L3Harris Technologies LHX.  

About the Industry

The Zacks Aerospace-Defense industry comprises companies that primarily design and manufacture heavy-built products like commercial as well as military jets and helicopters, tankers and other combat vehicles, missiles, combatant ships as well as auxiliary ships, submarines, bombs, guns, space transportation vehicles, military satellites and a few more.

The industry also includes cyber security players that offer information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions. A portion of its revenues comes from defense contractors offering spare parts, aircraft modification, ship repair and overhaul services, and supply-chain management services.

3 Trends Shaping the Future of the Aerospace-Defense Industry

Air Traffic View Boosts Opportunities: According to the latest monthly analysis report by the International Air Transport Association (“IATA”), global air passenger traffic, measured in revenue passenger kilometers (RPK), surged a solid 4.6% year over year in August 2025. This reflected the continued growth momentum in air travel. Looking ahead, IATA projects passenger traffic to grow 5.8% year over year in 2025. This steady growth outlook is expected to benefit aerospace and defense companies, particularly those serving the commercial aviation market.

Increasing the Defense Budget Continues to Spark Growth: The defense industry proved resilient throughout the period, aided by steady government financing, while the commercial aircraft business has been rising strongly in recent quarters after recovering from the pandemic-era slowdown. In light of this, it is important to note that in May 2025, U.S. President Trump proposed raising the country's defense budget by 13% to $1.01 trillion for fiscal 2026. These enhanced funding provisions create the conditions for defense-focused industry participants to increase their production volume and win additional contracts, both of which are expected to improve their bottom line.

Supply-Chain Issues Continue to Act as a Headwind: The Aerospace and Defense industry continues to face headwinds from supply-chain disruptions that began during the pandemic, caused by reduced aircraft demand and global movement restrictions. According to IATA, these supply-chain constraints will hinder airlines from reaching their full growth potential and slow progress toward reducing CO2 emissions. IATA’s June 2025 outlook notes that aircraft deliveries are currently about 30% below their previous peak, pushing the global aircraft backlog to a record 17,000 units. 

These challenges have disproportionately affected smaller suppliers, particularly those closely tied to the commercial aerospace and aftermarket services sectors. While the global economy has gradually recovered, supply-chain constraints persist and are likely to hinder industry growth in the near term.

Zacks Industry Rank Reflects Dull Outlook

The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #172, which places it in the bottom 29% of more than 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s bottom-line estimate for the current fiscal year has moved down 5.8% to $4.35 since Aug. 31.

Before we present a few aerospace-defense stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Beats S&P 500, Lags Sector

The Aerospace-Defense industry has outperformed the Zacks S&P 500 composite, while it underperformed its sector in the past year. The stocks in this industry have collectively surged 27% in the past year, while the Aerospace sector has soared 30.5%. The Zacks S&P 500 composite has gained 18.7% in the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of trailing 12-month EV/Sales, which is used for valuing capital-intensive stocks like aerospace-defense, the industry is currently trading at 3.26X compared with the S&P 500’s 5.81X and the sector’s 3.45X.

Over the past five years, the industry has traded as high as 3.26X, as low as 1.69X and at the median of 2.32X. 

EV-Sales Ratio TTM

3 Aerospace-Defense Stocks to Watch

L3Harris Technologies: Headquartered in Melbourne, FL, LHX is a technology-oriented aerospace and defense player that delivers advanced defense technologies across air, land, sea, space and cyber domains. On Oct. 16, 2025, L3Harris Technologies revealed its agreement with MHI RJ Aviation Group to perform base maintenance work on the CRJ aircraft. L3Harris will carry out the nose-to-tail modifications under this multi-year agreement on CRJ700 and CRJ900 aircraft at two dedicated service lines at the Mirabel facility. 

The Zacks Consensus Estimate for LHX’s 2025 sales calls for a 2.1% improvement from the previous year’s reported number. LHX’s long-term (three to five years) earnings growth rate is 13.02%. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price & Consensus:  LHX

 

GE Aerospace: Based in Cincinnati, OH, the company is a leading designer, developer and producer of jet engines, components and integrated systems for military, commercial and business aircraft. GE Aerospace is well-known for its aero-derivative gas turbines for marine applications. On Oct. 21, 2025, the company announced its third-quarter 2025 results. Its total revenues surged 24% year over year to $12.2 billion, while its adjusted earnings per share (EPS) improved 44%.

The Zacks Consensus Estimate for GE’s fourth-quarter 2025 sales indicates an 11.1% improvement from the year-ago quarter’s reported number. The estimate for fourth-quarter 2025 earnings implies 6.8% growth from the year-ago quarter’s reported number. GE currently carries a Zacks Rank #3 (Hold). 

Price & Consensus:  GE

General Dynamics: Headquartered is in Reston, VA, GD engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company released its third-quarter earnings on Oct. 24, 2025. Its total revenues surged 10.6% year over year to $12.91 billion, while its adjusted EPS improved 15.8% to $3.88. 

The Zacks Consensus Estimate for GD’s 2025 sales indicates a 7.3% increase from the previous year’s reported number. The estimate for 2025 earnings implies 12% growth from last year’s reported figure. It currently carries a Zacks Rank #3. 

Price & Consensus:  GD

 

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GE Aerospace (GE): Free Stock Analysis Report
 
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This article originally published on Zacks Investment Research (zacks.com).

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