“Following a year in which the group as a whole performed surprisingly well, we are downgrading some of the top performers,” analyst Joseph Nadol wrote today in a note to clients.
Nadol cut Raytheon, the largest missile supplier to the U.S. Defense Department, to neutral from overweight. The Waltham, Massachusetts-based company returned 23 percent in 2012 including dividend payments. Raytheon shares fell 1.1 percent to close at $57.74 in New York.
Northrop Grumman, maker of Global Hawk drones, was revised to underweight from neutral. The Falls Church, Virginia-based defense contractor returned 20 percent last year. Its shares declined 1.9 percent to $67.34.
Harris (HRS:US), a maker of communications equipment, was cut to underweight from neutral. The Melbourne, Florida-based company returned 40 percent last year. Harris shares fell 2.3 percent, the biggest decline in more than two months, to close at $48.91.
Defense contractors face automatic Pentagon cuts totaling about $45 billion this year unless the White House and lawmakers agree by March 1 to an alternate deficit reduction plan.
“We believe that Republicans as a group put a higher priority on spending cuts than they do on preserving the defense budget,” raising the risk no deal will be reached before the deadline, Nadol wrote in a separate note to clients today.
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