JPMorgan Warns: U.S. Aerospace & Defense Sector Unlikely to Reverse Slump This Earnings Season
nashnova research
JPMorgan warned on October 8 that solid Q3 results from aerospace and defense companies may not be enough to lift the sector out of its recent slump; slowing air traffic, uncertain U.S. defense spending, and persistent supply-chain bottlenecks are weighing on sentiment simultaneously.
Why can't this sector catch a bid?
Aerospace and defense stocks lagged in Q3 while the broader market neared all-time highs. This means → capital is actively rotating away from the sector, not reacting to a weak macro backdrop.
Analyst Seth Seifman flagged three headwinds: slowing air-traffic growth, uncertain U.S. defense spending, and persistent supply-chain constraints.
In plain terms = airline passenger growth is plateauing, military budgets are in political limbo, and parts shortages remain unresolved — pressure from all three sides at once.
Which commercial aerospace names could outperform?
JPMorgan's top picks in commercial aerospace are Howmet Aerospace and Honeywell Aerospace.
Howmet's stock is under pressure for two reasons: GE Aerospace's planned acquisition of Consolidated Precision Products, and a supplier developing competing blade-casting capability — raising questions about Howmet's long-term moat. Still, analysts expect 2026 earnings estimates to be revised upward.
Honeywell has fallen more than 25% since Q2 earnings; JPMorgan believes expectations are now fully reset, with limited further downside.
TransDigm could benefit from better-than-expected initial FY2027 guidance; despite concerns about slowing air traffic, a backlog of engine-maintenance work should sustain aftermarket demand for several quarters.
Where is the defense-spending uncertainty coming from?
The November U.S. congressional elections are the biggest variable — investors are assessing whether a shift in congressional control could cap defense-budget growth.
This means → even after the vote, FY2027 federal budget negotiations could drag on for months, so the uncertainty will not lift overnight.
A deeper structural pressure: rising U.S. government borrowing costs are putting interest payments in direct competition with discretionary defense spending. This reflects a ceiling on military-budget growth driven not just by political will, but by fiscal capacity.
Which defense stocks does JPMorgan favor?
Top picks are Lockheed Martin and Huntington Ingalls Industries, though both carry a "neutral" rating.
Lockheed's case: improving execution + a sharp rise in order backlog driven by missile contracts.
Huntington Ingalls catalysts: milestones on the USS *John F. Kennedy* carrier + a submarine contract awarded in July. The stock has fallen roughly 20% since the last earnings report — the depressed price may create room for a positive reaction to good news.
JPMorgan is more cautious on Northrop Grumman: limited exposure to missile demand, and the company lost the Navy's F/A-XX next-generation carrier-based fighter competition.
What do the Leidos downgrade and Boeing hold signal?
Leidos was cut from "overweight" to "neutral," target price lowered from $160 to $142. The core issue: healthcare-segment margins are expected to drop from 22% to 16%, dragging adjusted EBITDA from $24.5 billion down to $21.4 billion.
In plain terms = the Street consensus still sits at $24.5 billion in EBITDA; JPMorgan thinks that number is too optimistic and sees downward revision risk.
Boeing holds its "overweight" rating and $290 target (about 54% above the October 7 close of $188.32). The thesis rests on ramping 737 and 787 production + advancing the 777X + stabilizing the defense unit — but the long-term question is whether roughly $500 billion in order backlog can convert into actual deliveries.
What needs to happen for the sector to turn around?
JPMorgan identifies two key checkpoints: whether Q3 earnings trigger upward estimate revisions + whether defense-spending direction clarifies after the congressional elections.
This means → in the near term the sector remains in a "waiting for a signal" phase, lacking a clear catalyst for fresh buying.
The bank also maintains its "overweight" rating and $40 target on StandardAero, signaling continued conviction in the aftermarket-maintenance segment.
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