As the calendar turns to December, investors are thinking about stocks for 2023 . Brokerage firm Cowen likes Raytheon Technologies shares for the new year, calling it a "best idea" and a top aerospace and defense growth story.
Analyst Cai von Rumohr believes commercial aerospace aftermarket sales will speed up in 2023 as air travel demand continues to recover from Covid-induced weakness. What's more, he sees defense spending accelerating in 2024 and 2025—which will help top-line revenue as well.
There are a couple of things he sees helping the defense franchise. Raytheon's aircraft engine division Pratt & Whitney is on eight military aircraft programs. Pratt's defense revenue have been down in 2022, but should edge back up as production of its F135 engine increases.
The company's defense business will also benefit from the U.S. and allies replenishing missile stocks depleted by the war in Ukraine.
The combination of improving commercial and defense businesses can help earnings grow about 15% a year on average for the coming three years. "This is the highest [earnings per share] growth among [aerospace and defense] big caps," wrote von Rumohr in a report published over the Thanksgiving holiday.
His price target for shares is $120, up about 23% compared with Friday's closing price of $97.47 a share.
The rest of the Street seems to agree. About 73% of analysts covering Raytheon stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
The average analyst price target , however, is a little lower than von Rumohr's, at about $106 a share. At the start of the year, the average analyst price target was about $86 a share.
Raytheon stock is off about 0.9%, but the market is weak. S&P 500 and Dow Jones Industrial Average futures are off about 0.5% and 0.7%, respectively.
Coming into Monday trading, Raytheon shares have been much better than the broader market, up about 13% year to date, while the S&P 500 is off about 16%.
Along with Raytheon, von Rumohr names Boeing (BA) and Leidos (LDOS) shares as two of his other "top picks." The analyst Buy-rating ratios for those two stocks are about 77% and 64%, respectively.