Deutsche Bank Bullish On Defense Stocks After 'Positive Inflection' In U.S. Defense Spending

A recent report by Deutsche Bank focused on the U.S. defense sector and how an environment of rising interest rates and falling oil prices will affect defense stocks. In the report, analysts raised their price targets for several names in the space.

Rising Rates And Falling Oil No Match For Government Spending

Analysts believe that the potential negative effects of oil prices and interest rates on defense stocks will be more than offset by higher government defense spending.

Overall, analysts see a modest rising rates environment as "benign" for defense names, but they do concede that falling oil prices coupled with potential Iran normalization is more of a risk.

Related Link: Barclays: Defense Sector Stock Prices Enter Risky Territory

Analysts remain bullish on the sector, however, because of the 2015 weapons appropriations passed by Congress in December. After seven years of falling defense spending, analysts see this legislation as an inflection point in the sector.

Election Cycle Outperformance

Analysts point out a positive trend in defense stocks in the year leading up to U.S. presidential elections. The defense group has outperformed the overall market in the year leading up to the election in eight of the last nine races and in every single election since 1984.

Stock Picks

Deutsche Bank raised price targets for six big names in the defense space. Below is a summary of the company's ratings and price targets mentioned in the report.

• Huntington Ingalls Industries Inc HII: Buy; $157 target
• General Dynamics Corp GD: Buy; $166 target
• Level 3 Communications Inc LVLT: Buy; $145 target
• Northrop Grumman Corp NOC: Buy; $179 target
• The Boeing Company BA: Buy; $175 target
• Lockheed Martin Corp LMT: Hold; $220 target

Raytheon Co RTN: Hold; $120 target