US Defense Sector: US Bombing of Iran Raises Risk of Escalation
We believe long-term development and resupply of missile defense technology is already baked sufficiently into our forecasts.
Early on June 22 local time, the US deployed long-range bombers and missiles to strike Iranian nuclear enrichment and armament sites. Shares of US defense firms were mostly flat in premarket trading on June 23.
Why it matters: We see US forces engaging targets in Iran as having raised the risk of retaliation, including Iranian missiles and drones targeting US personnel and assets in the region, closing the Strait of Hormuz to stifle oil shipments, or cyberattacks more broadly.
- None of these scenarios benefit the defense firms we cover.
- If the conflict becomes prolonged and expensive, it could divert military funds to operations and logistics and away from research, development, and procurement, where defense contractors make the bulk of their money.
The bottom line: We view trading action in defense stocks on news of armed conflict as remotely connected to the fundamentals.
- We have not altered our valuations of defense contractors in light of this news, and we believe long-term development and resupply of missile defense technology is already baked sufficiently into our forecasts.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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