JPMorgan's industry outlook report led by analyst Seth Seifman on December 19 projects sustained support for aerospace and defense stocks through 2026. The commercial aerospace sector stands out as the clearest bright spot, while U.S. defense stocks face a more selective and politically complex environment.
In aerospace, the bank highlights robust demand fundamentals, supported by Boeing and Airbus' multi-year production backlogs, continued global air traffic growth, and aging commercial aircraft fleets. JPMorgan anticipates gradual increases in aircraft production will drive growth for OEMs and aftermarket services—particularly in engine maintenance where capacity constraints remain pronounced.
Boeing remains JPMorgan's top pick in aerospace, alongside StandardAero (SARO.US) and ATI (ATI.US), citing visible production growth, margin expansion, and valuation support. Analysts note Boeing's potential for significant cash flow growth later this decade as aircraft deliveries rise and defense operations stabilize. ATI garners attention for its growing exposure to aerospace/defense demand as clients seek alternatives to Russian titanium.
While maintaining constructive views on higher-valuation aerospace stocks like GE Aerospace (GE.US) and Howmet Aerospace (HWM.US) after their 2025 rallies, JPMorgan acknowledges their elevated multiples may limit upside despite strong earnings momentum and aftermarket demand.
The defense outlook shows more nuance. Although global military spending rises amid geopolitical tensions and increased allied burden-sharing, U.S. political dynamics create uncertainty. The bank notes current policies favoring smaller, non-traditional defense contractors over prime contractors, complicating investment theses for major incumbents.
Among defense plays, JPMorgan favors L3Harris Technologies (LHX.US) for its mid-single-digit revenue growth, margin expansion, and Aerojet Rocketdyne recovery. In services, Leidos (LDOS.US) draws interest for its attractive valuation, earnings potential, and cash deployment flexibility.
The bank downgraded Lockheed Martin (LMT.US) from "Overweight" to "Neutral," citing concerns about long-term FCF growth including pension-related headwinds late this decade and uneven execution across its portfolio. While missile business growth is expected, JPMorgan views consensus cash flow expansion estimates as overly optimistic.
Overall, JPMorgan maintains a positive 2026 sector outlook but advises increasingly selective positioning—particularly in defense where program execution, budget risks, and political dynamics may drive performance divergence.
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