The aerospace and defence industry is very much a split one these days. On the one hand, we have BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US), which has been weathering the recession pretty well, keeping earnings per share going nicely and shelling out attractive dividends the annual cash payout has been lifted each year with an expected yield of 4.4% this year, even after a healthy share price performance.
BAEs long-term relationship with Saudi Arabia has helped a good deal, accounting for a full 20% of turnover in 2013 and itll be high this year, too.
The shares have climbed by 83% since late 2011 to todays 471p, and theyre still only on a P/E of 12 based on 2015 forecasts and dropping to 11.4 for 2016.
New high
Cobham (LSE: COB) has had an even better year than BAE, reaching a 52-week high of 334.9p on 9 January before dropping back a fraction to 332p as I write. Since late 2011 the shares have beaten BAE, too, having doubled. Dividend yields have been lower than BAEs, so all in all the two companies have performed similarly for their shareholders.
Cobham is on a higher P/E rating, of 15.4 this year, but it has better earnings growth forecasts. The company released an upbeat update in November telling us that order momentum is good with cost reduction bearing fruit and its been winning some nice contracts of late.
Profit warnings
But when we turn to poor struggling Rolls-Royce (LSE: RR) (NASDAQOTH: RYCEY.US) we see a different picture. Rolls-Royce shares had actually been ahead of the sector until late in 2013, after seeing EPS grow by 25% in 2011 and 23% in 2012. But a slip to a 10% rise in 2013 was below expectations, and the results were accompanied by a profit warning telling us there was unlikely to be any growth in sales or profits in 2014.
With optimism having pushed the shares to a year-end P/E of 19.4 the only way was down, and since then weve seen a 33% drop in the shares to 868p. The slide was hastened by a further profit warning in October which told us to expect a 3% fall in underlying profit in 2015 the price fell 17% in the following days.
A way back?
But Rolls forecast P/E is now under 14 for this year and just 12.7 in 2016, with dividend yields at around 3%. A long-term bargain for recovery now? Could be, but with confidence shaken by profit warnings its hard to see the shares commanding a P/E up around 19 again soon.
As part of a very simple approach to investing, successful aerospace companies like BAE, Cobham and Rolls-Royce could help you to financial security.
To learn more, get yourself a copy of the Motley Fool’s special 7 Simple Steps For Seeking Serious Wealth report, which shows you how investing in shares has wiped the floor with every other form of investment over the past century and more.
It’s completely FREE, so click here for your personal copy and get started today.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.