Defense stocks end slide after release of $750B federal budget

|About: General Dynamics Corporation (GD)|By:, SA News Editor

Aerospace and defense stocks are on the rise after the U.S. FY 2020 defense budget was released earlier this week: United Technologies (UTX +1.3%), Huntington Ingalls (HII +2.1%), Raytheon (RTN +0.7%), General Dynamics (GD +1.7%), Northrop Grumman (NOC +1.1%).

The Trump administration's proposed $750B budget drew mixed responses; Bernstein analysts note the budget represented an increase of 4.8%, or 3.3% excluding border wall funding, in line with their expectations.

Baird's Peter Arment believes the budget number is a win and says "the defense recapitalization theme is well intact," meaning the government is moving to replace old equipment.

But Morgan Stanley analyst Rajeev Lalwani says the proposal is "lackluster" and not likely to make it through Congress in the current form.

The $750B headline budget is "at the upper end of expectations but light on investment funding," Lalwani writes. "The mix of funds indicates a prioritization of research and development while trimming procurement, netting about 2% growth, shy of mid-single-digit expectations."

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