The growing tensions between nations in various regions and governments’ modernization efforts are contributing to increased global spending on defence sector. The developments, like South Korea's decision to deploy laser weapons to intercept North Korean drones, highlight the growing emphasis on advanced defense technologies. Meanwhile, nations like Russia and China are rapidly advancing in space weaponry, intensifying the competitive landscape. The proliferation of drones is driving significant demand for counter-drone solutions. This surge in drone innovation is further propelling the development of advanced counter-drone technologies, creating new opportunities for top defense stocks.
like EOS to expand their market presence and offer cutting-edge solutions in response to these emerging security needs. Defense stocks to invest in currently are
Austal Limited (ASX: ASB)
For the fiscal year ending June 30, 2024, Austal Limited achieved a notable turnaround in EBIT, moving from a loss of $4.8 million in FY23 to a profit of $61.3 million in FY24, an improvement of $56.5 million. This EBIT increase was influenced by exceptional items, including a $57 million provision for legal costs related to ongoing U.S. regulatory investigations and a $54 million profit from the sale of land in Mobile, U.S.
Shipbuilding EBIT recovered to $25.1 million (compared to a $9.5 million loss in FY23) on revenue of $853.9 million, reflecting an improved EBIT margin of 2.9%. The net profit after tax was $14.9 million, a turnaround from a net loss of $13.8 million in FY23.
Austal Limited is one of the Best Defense Stocks, poised for growth with a solid pipeline of opportunities, as it transitions to larger programs with improved cost inflation protections and enhanced labour hour metrics per vessel. The company’s USA division has secured new contracts totalling $1.4 billion during FY2024, including LCU and EMS contracts.
Moreover, Austal has signed a Heads of Agreement with the Commonwealth of Australia to establish a Strategic Shipbuilding Agreement (SSA). If finalized, this agreement would designate Austal as the Commonwealth’s strategic shipbuilder at Henderson, Western Australia, thereby securing a long-term order book for the shipyard and reinforcing its future growth prospects.
Over the past 7 years, Austal Limited has achieved nearly $12 billion in revenue and approximately $580 million in EBIT, with an average EBIT margin of 4.9%. Notably, this margin exceeded 7% when major programs, such as the Littoral Combat Ship (LCS) program, transitioned from the high-cost ramp-up phase to a steady-state profitable phase.
Currently, the company is among the best defense industry stocks, boasting a record order book of around $12.7 billion, surpassing its total revenue from the past 7 years. At the 7-year average EBIT margin, this substantial order book has the potential to generate over $600 million in EBIT. Furthermore, there is significant upside potential as major programs progress to the steady-state phase, which could further enhance profitability.
The new floating dock in San Diego is progressing through environmental requirements before its commissioning. This dock is expected to positively impact demand and enhance the company’s ability to service larger vessels, such as Littoral Combat Ships for the U.S. Navy, thus driving revenue growth.
Electro Optic Systems Holdings Limited (ASX: EOS)
For the half-year that ended on 30 June 2024, Electro Optic Systems Holdings Limited reported strong financial output driven by significant activity across its business units.
The Group reported a revenue of $142.6 million, reflecting a substantial increase of $68.3 million or 92.0% compared to revenue $74.3 million in FY23. This revenue growth was primarily driven by the Defence segment, which saw its revenue double to $101.4 million from $50.7 million, a 100% increase. The Space segment also experienced a notable revenue rise to $41.3 million, up 75% from $23.6 million in the prior period.
Underlying EBITDA showed a turnaround with a positive result of $11.5 million compared to a loss of $14.8 million previously. Finance costs decreased by $3.5 million to $12.5 million, attributed to a reduction in debt principal.
Over the past five years, from 2019 to 2023, the company has demonstrated a consistent upward trend in revenue and a substantial improvement in net cash generated from operating activities. The company's financial stability is further underscored by its strong liquidity position and efficient operational cycle. It benefits from prompt payment collections and excellent inventory turnover, which contribute to its overall financial health.
The company is one of the best defense sector stocks as it currently holds a backlog order book with contracted work exceeding $386m and maintains a solid foundation for sustained revenue and operational activity, thus supporting the growth trajectory and stability in coming years.
Source: Company’s Report
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