J.P. 摩根-美股-航空航天与国防-军工股：得到或失去之道-JPMORGAN-Aerospace and Defense Defense Stocks Ways to Win (or Lose) from Here

www.jpmorganmarkets.comNorth America Equity Research06 September 2017Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($ bn)Price ($)CurPrevCurPrevGeneral Dynamics Corp.GD US60.55198.73Nn/c223.00n/cHarris CorporationHRS US14.78122.89OWn/c135.00132.00L3 TechnologiesLLL US14.54182.85OWn/c200.00197.00Lockheed MartinLMT US88.00302.20Nn/c339.00320.00Mercury SystemsMRCY US2.2948.15OWn/c53.00n/cNorthrop GrummanNOC US47.05268.07Nn/c275.00n/cRaytheonRTN US53.46183.08OWn/c194.00185.00Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 05 Sep 17.Aerospace and DefenseDefense Stocks: Ways to Win (or Lose) from HereAerospace & DefenseSeth M. Seifman, CFA AC(1-212) 622-5597seth.m.seifman@jpmorgan.comBloomberg JPMA SEIFMAN <GO>Benjamin E Arnstein, CFA(1-212) 622-6548benjamin.e.arnstein@jpmorgan.comMichael S Rednor, CFA(1-212) 622-1110michael.s.rednor@jpmorgan.comJ.P. Morgan Securities LLCSee page 24 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.There are still good reasons to own defense stocks but after persistent out-performance, we are exploring how they could continue to work (or not). Defense prime FCF yields are now ~5% on 2018E and in our base case, the stocks grind higher on FCF growth with stable multiples, which yields up to ~10% upside to our Dec 2018 price targets. But FCF multiples could move higher than 20x, as we note below, and while out-year FCF estimates have not been increasing, budget momentum could drive numbers up moderately. The key risk is that budget growth misses expectations and in an unlikely worst case, that sequestration returns. Among the primes, we prefer RTN (OW) based on a nice balance of growth drivers (near-term vs long-term and US vs intl) but upside to our targets does not vary dramatically. We also rate HRS and LLL OW, both of which have more valuation support on out-year FCF, and small cap MRCY is OW as well.  More multiple expansion is not assured, but it’s not crazy, either. Defense P/E and FCF multiples continue expanding, with the primes now trading at ~20x next year’s EPS and FCF (CY18), the high end of the historical range. Defense primes also trade above the S&P 500, most Industrial stocks, and in some cases, Consumer Staples. (See pp 3-4.) This has not been the case historically but the argument for relatively high defense multiples is solid, with expectations for 4-5% sales growth the next few years, in line with Industrials and Staples. (See Tables 1-2.) Moreover, Defense is insulated from macro weakness and there is upside risk from geopolitical events, as the North Korea situation continuallyreminds us. If Defense P/E multiples e