The Russia-Ukraine war that began on February 24, 2022 has directly impacted the aerospace and defence (A&D) industry value chains, particularly the manufacturing side. Fast forward to 2023 and investors’ interest has shifted to defence companies following the eruption of the Israel-Hamas war on October 7.
No one wants a massive headwind like war, but the current conflict boosts aerospace and defence stocks. If you want exposure to aerospace and defence stocks today, you can buy CAE Inc. (TSX: CAE), MDA Ltd. (TSX: MDA), and Héroux-Devtek (TSX: HRX) on the TSX. These Canadian companies are beating the market.
Critical support for defence forces
Canadian firm CAE is a top U.S. defence contractor. The Defense & Security business unit of this $7.2 billion company provides training and mission support solutions across multi-domain operations such as air, land, maritime, space, and cyber.
“CAE is dedicated to the innovation and data analytics needed to advance digital technology and enable integration. Together with industry partners, we are able to leverage the best of our capabilities to deliver critical readiness for defence forces,” said Marc-Olivier Sabourin, Vice President of CAE Defense & Security, International.
Even before the Middle East conflict, CAE obtained several contracts as government defence spending increased. In Q1 fiscal 2024, revenue and operating income climbed 13% and 230% to $1.1 billion and $130.1 million versus Q1 fiscal 2023, respectively. Notably, net income attributable to equity holders soared 3,741% year over year to $65.3 million.
As of this writing, CAE trades at $31.01 per share and is up 18.4% year to date.
Hottest A&D stock
MDA is the hottest ticker in the A&D sector. At $12.38 per share, current investors enjoy a 93.4% year-to-date return. This space technology developer and manufacturer from Brampton caters to nearly all sectors of the fast-growing space economy.
The $1.5 billion company delivers advanced surveillance and intelligence solutions, defence and maritime systems, radar geospatial imagery, space robotics, satellite antennas, and communication subsystems. MDA aims to be the partner of choice for emerging space companies, prime contractors, and government agencies worldwide.
In the first half of 2023, revenue and comprehensive income rose 40.5% and 63.7% year over year to $397.9 million and $29.3 million, respectively. Because of the robust business growth, MDA expects to end fiscal 2023 with revenues between $785 and $810 million.
Solid choice
A third solid choice is Héroux-Devtek. Like CAE and MDA, this A&D stock outperforms the broader market. At $15.19 per share, investors enjoy a 15.6% positive return thus far in 2023. The $516.6 million firm designs, develops and manufactures aerospace products such as aircraft landing gears, hydraulic flight control actuators, and fracture-critical components.
Héroux-Devtek from Longueuil is the world’s third-largest landing gear company serving the commercial and defence sectors. In the three months that ended June 30, 2023, sales increased 23.3% to $140.7 million versus Q1 fiscal 2023, while net income jumped 311.4% year over year to $3.9 million.
According to its President and CEO, Martin Brassard, Héroux-Devtek is well-positioned for upcoming opportunities in both the civil and defence market segments. Besides the healthy order book and numerous projects, the company is ready to support its clients’ growth initiatives.
Heightened interest
Canadian aerospace and defence companies are famous worldwide. Expect investors’ interest in CAE, MDA, and Héroux-Devtek to heighten even more as the geopolitical tensions in Eastern Europe and the Middle East drag on.
