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Key takeaways
- Northrop Grumman, Lockheed Martin and other companies in the aerospace and defense sectors that count the U.S. government as a major customer are scheduled to report earnings this week.
- Some analysts believe these companies could be conservative in their forecasts as the federal shutdown continues. Morgan Stanley said that could impact their shares in the near term, suggesting a buying opportunity.
The government shutdown hasn’t been great for defense stocks. But it may be time to buy them.
Companies that supply the US military and other parts of the government have faced near-term uncertainty this month as the shutdown continues into its fourth week. That weighed on stocks: For example, the iShares US Aerospace & Defense ETF (ITA) and Invesco Aerospace & Defense ETF (PPA) were largely left out of the broader market’s gains last week, finishing roughly flat while the S&P 500 rose nearly 2%. Both are down from their highs in early October.
That could mean an opportunity to buy stocks that would get a boost when there is more clarity on government financing, according to some Wall Street analysts. Some companies may provide muted forecasts during the lockdown, which could be revised upward, analysts said.
“We will be buyers of the tepid defense outlook, as upward revisions should materialize as the financing picture clears up,” Morgan Stanley analysts wrote in a recent note.
Why is this important to investors?
The government shutdown has injected some uncertainty into government spending expectations. Some analysts say this uncertainty could be a source of profitable ideas — such as defense companies that derive a significant portion of their business from the U.S. military, which may soon offer tepid forecasts that can later be improved.
Northrop Grumman (NOC), which is scheduled to report earnings on Tuesday, could set the tone. Morgan Stanley’s price target of $720 implies an upside of about 20% from Monday’s close of $602 and is well above the average of analysts surveyed by Visible Alpha of about $635.
Northrop Grumman shares, though down about 1% since the shutdown began at the beginning of October, are up about 28% in 2025, outperforming the S&P 500 by nearly 15% over the same period.
Analysts also said they like Lockheed Martin (LMT), which is scheduled to report results on Tuesday alongside RTX Corp. (RTX), and GE Aerospace (GE). CACI (CACI) is scheduled to follow later in the week. Boeing (BA) and L3Harris (LHX) are scheduled to publish results next week.
Shares of Northrop Grumman, RTX and others rose Monday afternoon amid broader market gains. In an interview with CNBCWhite House economic adviser Kevin Hassett said he expects the shutdown “will likely end sometime this week.” At Polymarket, current bettors view the close expiration between Thursday and Sunday as slightly more likely than Monday to next Thursday.
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