By Al Root
President Donald Trump's 2027 budget request is a tailwind for defense stocks. The wind will blow harder for some corners of the industry than others.
Space and water look positioned to do the best.
On Friday, Trump unveiled his fiscal year 2027 budget request to Congress, which includes $1.5 trillion for defense, building "upon the historic $1 trillion" request for fiscal year 2026.
The $1.5 trillion number would be up 42% from total fiscal year 2026 budgetary resources, according to the White House. It's a historic increase, not seen since the Korean War, when annual defense spending jumped from about $14 billion in 1950 to about $33 billion in 1951 and almost $48 billion in 1952.
The budget request looks to be in addition to the $200 billion in additional funding the Pentagon is seeking to execute the Iran war this year. It also includes $350 billion for military resources through reconciliation. Budget reconciliation bills are filibuster-proof, needing only 51 votes to pass.
"The Navy is projected to see its ship budget more than double, [to] $65.8 billion versus $27.2 billion in fiscal year 2026," wrote Vertical Research Partners analyst Rob Stallard on Monday. "Also seeing a big bump up is the Space Force. Its request of $71.2 billion represents a 77% year over year increase."
That is relatively good news for shipbuilders General Dynamics and Huntington-Ingalls Industries, and for space start-ups including Rocket Lab, Firefly Aerospace and, of course, privately held SpaceX.
Huntington stock was up 1% in early trading on Monday. General Dynamics stock was down 0.1%. Rocket Lab and Firefly stocks were up 1.6% and 3.2%, respectively.
Coming into Monday trading, Huntington Ingalls' stock was up 114% over the past 12 months. General Dynamics' shares were up 39%. Those shares trade for about 23 times and 21 times estimated 2026 earnings, respectively. A year ago, Huntington shares traded for about 13 times earnings. General Dynamics shares traded for about 17 times.
Firefly and Rocket Lab aren't expected to be profitable in 2026, so they don't have PE ratios. Coming into Monday trading, Rocket Lab stock was up 314% over the past 12 months. Firefly sold shares in an August IPO at $45 apiece. The stock closed at $32.93 on Thursday.
The Defense Department is also asking for 85 F-35 jets from Lockheed Martin, up from 47 in fiscal year 2026, added Stallard. The Army gets an increase in the armored multipurpose vehicle, or AMPV, made by Britain's BAE Systems. "There is also, of course, a huge allocation for missiles," said Stallard.
BAE stock was unchanged on Monday. London was closed for the Easter holiday. Lockheed shares were up 0.1%.
Coming into Monday trading, BAE stock was up 51% over the past 12 months, leaving shares trading for about 28 times estimated 2026 earnings, up from 20 times a year ago. Lockheed shares were up 44%, leaving them at about 21 times estimated 2026 earnings, up from 16 times a year ago.
More missile demand benefits many companies, including L3Harris Technologies and RTX. Both those stocks have gained more than 65% over the past 12 months, leaving them trading for about 26 times estimated 2026 earnings.
Higher spending is a boon for the sector. Still, through Thursday trading, the iShares Aerospace & Defense ETF was down about 9% since the start of the fighting in Iran. That seems counterintuitive. But the stock market is forward-looking, and military actions today could lead to fewer actions tomorrow.
"Fears of reduced spending, however, look unfounded. "Even if Trump doesn't get his full $1.5 trillion, investors can expect defense spending growth for years to come," wrote Morgan Stanley analyst Kristine Liwag on Monday.
The iShares ETF was flat in early trading on Monday, while the S&P 500 was up 0.2%. Coming into Monday trading, the ETF was up 64% over the past 12 months.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 06, 2026 10:39 ET (14:39 GMT)
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