Weapons manufacturers celebrate booming business following Trump election

Weapons manufacturers celebrate booming business following Trump election
4 min read
18 Nov, 2016
Blog: Trump's victory has given a shot in the arm to the world's leading arms dealers, reports Melissa Hancock.
The market has seen a Trump victory as a win for weapons-makers [AFP]

Share prices in some of the world's leading arms manufacturers have risen dramatically since Donald Trump swept to a striking victory in the US presidential elections on November 9.

Shares in BAE Systems, Britain's largest weapons manufacturer, soared to a record high on the back of the news; of the company's £18bn ($22bn) annual revenue, roughly 40 percent is currently generated in the US.

The shares, which are listed on the London Stock Exchange, rose by 6.75 percent on November 9 to close the day at £5.85 per share, according to data provided by investment research company Morningstar.

Meanwhile, the share prices of four of the major US arms companies - all listed on the New York Stock Exchange – also climbed rapidly the same day to close trading substantially higher.

Shares in missile-maker Raytheon rose by 7.47 percent to $146.71, while Lockheed Martin - maker of the staggeringly over-budget fifth-generation F-35 stealth fighter jet - rose by 5.97 percent to $253.46.

Shares in General Dynamics, who make miniguns and M1 Abrams tanks, rose by 5.40 percent to $162.09 - and Northrop Grumman, the corporation behind the B-2 Stealth bomber, rose by 5.41 percent to $242.30, according to Morningstar data.

Shares in Tomahawk missile manufacturer Raytheon surged in the hours after Donald Trump's victory was announced [GoogleFinance]

On November 9, hours after Trump's win, equity and fund research provider CFRA upgraded its advice on all four NYSE-listed dealers. Lockheed went from 'Hold' to 'Strong Buy', while share-dealers were advised to buy General Dynamics shares, having previously been advised merely to 'Hold' onto the ones they had. Advice on Raytheon shares were similarly upgraded to 'Buy' from 'Hold', and Northrup Grummon were boosted to 'Hold' from 'Sell'.

The positive growth trend continued as the week went on. Between November 9 and November 16, BAE Systems recorded a cumulative share price increase of 9.40 percent, while the corresponding data point stood at 7.07 percent for Raytheon, 10.1 percent for Lockheed Martin, 7.84 percent for General Dynamics and 6.75 percent for Northrop Grumman.

During the presidential campaign, Trump frequently used hawkish rhetoric and pledged to "rebuild our depleted military" and "repeal the defense sequester" which went into effect in 2013 after Congress failed to reach a new budget agreement. 

He also called for a state-of-the-art missile defence system, as well as pledging to increase the Army by between 75,000 and 540,000 soldiers, to build 42 new ships for the Navy, giving it 350 ships in its armada, and to "provide the air force with 1,200 fighter aircraft it needs". 

Lockheed Martin shares also jumped in price following the election result  [GoogleFinance]

Trump did not outline how large the increase in military spending would be, but speaking on the sidelines of a speech that he gave to the Union League of Philadelphia on September 7, one of his aides estimated that eliminating the sequester would amount to a roughly $500bn reinvestment over 10 years.

More specifically, Trump has been very vocal in pledging to join forces with Russia to fight the Islamic State group and Syrian rebels inside Syria.

Cruise missiles, particularly the Tomahawk manufactured and sold by Raytheon for upwards of $500,000 per missile, have been used extensively by the US military in its campaign against IS in Syria and their use now only looks set to increase further.

Industry traders have also speculated that the boost to arms companies' share prices has been facilitated by Trump's campaign pledge to hold more NATO members to commitments to spend two percent of their GDP on defence.

Only five of NATO's 28 member-states reportedly meet this commitment at present. 

"Following a Donald Trump election night victory, we now expect a more positive defence spending environment, reflecting Republican control of all branches of government and Trump's stated priorities to increase defense spending," noted Jim Corridore, equity analyst at CFRA in his most recent research outlook on the US defence industry, published on November 13.

"We think that a Republican majority in both Houses plus the Presidency could lead to an end to sequestration and higher defence budgets in coming years. Year to date through November 4, the S&P Aerospace & Defense Index rose 6.6 percent, versus a 2.4 percent increase for the S&P Industrials Index and a 0.3 percent decline for the S&P 1500 Composite Index."

In short, at least for arms dealers, business is booming.  

Follow Melissa Hancock on Twitter: @MelissaHancock0