3 Aerospace-Defense Stocks to Watch as Defense Spending Ramps Up

The Zacks Aerospace-Defense industry remains resilient, supported by rising defense spending and steady growth in global air travel, even as supply-chain challenges persist. The proposed increase in the U.S. defense budget to $1.5 trillion in fiscal 2027, though pending congressional approval, signals long-term support for defense companies, while solid air passenger traffic growth continues to drive demand across the aviation sector. However, ongoing production constraints and supply-chain disruptions have created significant aircraft delivery backlogs. The leading companies in the aerospace-defense industry that you might want to keep an eye on are L3Harris Technologies LHX, Huntington Ingalls Industries HII and Intuitive Machines, Inc. LUNR. 

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 Major Trends in Aerospace-Defense Industry

Increasing 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 strong in the recent quarters. In this context, it is important to note that in January 2026, U.S. President Trump proposed raising the country’s defense budget to approximately $1.5 trillion in fiscal 2027, up from $901 billion in fiscal 2026. While the proposed increase in military spending still requires congressional approval and final allocations may differ from initial proposals, the overall upward trend in defense spending is expected to support longer-term contract awards, higher production rates and improved operational planning for defense companies.

Air Traffic View Boosts Opportunities: According to a report by the International Air Transport Association (“IATA”), global air passenger traffic, measured in revenue passenger kilometers (RPK), surged a solid 5.7% year over year in November 2025. This reflected the continued growth momentum in air travel. In the December 2025 IATA report, the full-year forecast for passenger traffic has been revised downward slightly to 5.2% year over year compared to the 5.8% projected in IATA’s June global outlook report. However, it remains broadly consistent with the long-term historical average of 5%. A solid outlook in air passenger traffic fuels demand throughout the aviation industry. Defense companies — especially those tied to aerospace manufacturing and technology — benefit through technological advances and improved production economics.

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 December 2025 report highlights delivery shortfalls of more than 5,000 aircraft indicate that manufacturers have been unable to meet airlines’ planned delivery schedules, largely due to production constraints and supply-chain disruptions. Although aircraft output is gradually recovering, it remains well below historical production levels, even as global air travel demand continues to rise. This mismatch has led to an unprecedented order backlog exceeding 17,000 aircraft, which represents nearly 60% of the world’s active fleet. IATA also expects this backlog to be reduced in 2026. 

Smaller suppliers have been hit hardest, and ongoing supply-chain constraints are expected to continue limiting industry growth in the near term despite broader economic recovery.

Zacks Industry Rank Reflects Bright Outlook

The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #98, which places it in the top 40% of more than 244 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright 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.

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 36.6% in the past year, while the Zacks Aerospace sector has soared 40.5%. The Zacks S&P 500 composite has gained 18.3% 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 3.39X compared with the S&P 500’s 5.84X and the sector’s 3.82X.

Over the past five years, the industry has traded as high as 3.39X, as low as 1.98X and at the median of 2.66X. 

EV-Sales Ratio TTM

3 Aerospace-Defense Stocks to Watch

Huntington Ingalls Industries: Headquartered in in Newport News, VA, HII designs, builds and maintains nuclear-powered ships, such as aircraft carriers and submarines, and non-nuclear ships. In January 2026, HII announced that it has doubled the size of its unmanned facility in Portchester, U.K. The enlarged facility significantly enhances and strengthens the company’s presence in the United Kingdom and increases capacity and support for the U.K. Royal Navy and European partners that operate the REMUS line of unmanned underwater vehicles. 

The Zacks Consensus Estimate for HII’s 2026 sales calls for a 4.9% improvement year over year. HII’s long-term (three to five years) earnings growth rate is 14.39%. 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:  HII

Intuitive Machines: Headquartered in Houston, TX, LUNR is a diversified space company. It focused on space exploration. The company supplies space products and services to support sustained robotic and human exploration. In January 2026, Intuitive Machines completed its acquisition of Lanteris Space Systems, formerly Maxar Space Systems for $800 million. Intuitive Machines is positioned as a comprehensive, multi-domain provider capable of building spacecraft, delivering resilient communications and navigation, and operating systems across LEO, MEO, GEO and cislunar space.

The Zacks Consensus Estimate for LUNR’s 2026 sales calls for an increase of 108.7% year over year. LUNR’s long-term earnings growth rate is 26.67%. It currently has a Zacks Rank #2. 

Price & Consensus:  LUNR

 

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. In January 2026, LHX announced a first-of-its-kind proposed partnership with the U.S. Department of War to significantly expand its capacity to produce solid rocket motors for critical U.S. and allied missile systems. The partnership will strengthen L3Harris’ position in the U.S. defense industrial base by securing significant government-backed capital to rapidly expand solid rocket motor capacity. 

The Zacks Consensus Estimate for LHX’s 2026 sales calls for an increase of 6.4% year over year. LHX’s long-term earnings growth rate is 12.93%. It currently has a Zacks Rank #3 (Hold). 

Price & Consensus:  LHX

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L3Harris Technologies Inc (LHX): Free Stock Analysis Report
 
Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report
 
Intuitive Machines, Inc. (LUNR): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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