Defense, aerospace sectors look strong

October 5 - Associated Press - The aerospace industry has more than two years of growth ahead and while defense contractors face a less certain future, the Pentagon's spending outlook is more favorable than previously thought, Bank of America said Thursday in an analyst note.

It will be more than two years until the aerospace industry encounters a "cyclical downturn," and while Bank of America said it maintained its "Neutral" sector stance on defense, "we are more positively inclined," due to expectations of a larger fiscal 2007 supplemental spending bill, and 4 percent to 5 percent core budget growth over the next two years.

Instead of an 8 percent decline to $107 billion in 2007 supplemental funding, Bank of America now expects an 8 percent increase to $130 billion, with $70 billion already appropriated and $60 billion likely to be requested in February or March.

"Earnings growth into 2008 could turn out to be more healthy than we are currently forecasting, particularly for Army-related contractors," according to the note. But since defense stocks already have done well this year, "we may see some profit taking as we approach the midterm elections."

That potential profit-taking could create buying opportunities for General Dynamics Corp., Oshkosh Truck Corp. and Alliant Techsystems Inc., according to Bank of America.

In afternoon trading on the New York Stock Exchange, shares of General Dynamics dipped 43 cents to $74.37, while Oshkosh added 84 cents to $54.24 and Alliant slid 17 cents to $81.90.