French Paris Bank is optimistic about the aerospace and defense sectors of American Airlines Group Inc., with support for Raytheon (RTX.US), TransDigm (TDG.US), and AeroVironment (AVAV.US).

French Paris Bank BNP Paribas Exane on Wednesday for the first time covered 12 American Airlines Group Inc. aerospace and defense companies. The bank believes that investors should make selective investments, with the commercial aviation sector facing more severe year-over-year pressures, while defense spending is expected to accelerate by 2026. Compared to large commercial original equipment manufacturers (OEMs), the bank is more optimistic about the potential for suppliers and defense-focused contractors to rise. Senior analyst Matthew Exis stated that the sector had strong order shipment momentum before, but some growth drivers are difficult to replicate. In the commercial aviation sector, Exane prefers component and subsystem suppliers, giving positive ratings to Raytheon (RTX.US), TransDigm (TDG.US), and AeroVironment (AVAV.US), while also covering Boeing Company (BA.US) and GE Aviation with a negative outlook for the first time. In the defense sector, the team expects the 2026 US budget resolution to release demand, with Lockheed Martin (LMT.US), Northrop Grumman (NOC.US), and AeroVironment (AVAV.US) listed as top targets. Here are the key rating viewpoints of the newly covered companies: AeroVironment (AVAV.US): Outperforming the market Exane believes that the company is at the core of several priorities of the US Department of Defense, including small drones, anti-drone systems, and space-related technologies. Demand for cruise missiles and tactical drones has surged in recent conflicts, and Exane expects AeroVironment's AxS division to achieve double-digit mid-term growth. The acquisition of BlueHalo has expanded its business footprint, covering areas such as laser communication, electronic warfare (EW), radio frequency satellite communication (RF satcom), and Astronics Corporation equipment. Exane gives the stock a valuation of 7.4 times revenue in the 2027 fiscal year, saying that growth prospects support its premium level. Transdigm (TDG.US): Outperforming the market Analysts believe that the performance of this aerospace component manufacturer will exceed conservative expectations, especially in terms of profit margins in 2026 and 2027. Exane said concerns about Transdigm's "acquisition-driven model reaching a growth ceiling" are unfounded, as the company still has ample room for acquisitions and capital returns. The bank also predicts that the company will issue a special dividend of $100 next year; in an optimistic scenario of more acquisition activity, the return rate could increase to about 65%. Raytheon Technologies (RTX.US): Outperforming the market The bank expects output from Raytheon's Collins Aerospace division to exceed expectations as supply chain bottlenecks ease, improving prospects for original equipment sales. Raytheon's Pratt & Whitney division will also experience growth, as the geared turbofan (GTF) engine fleet gradually matures and the service life of legacy V2500 engines extends beyond expectations. At the same time, Exane believes that with key projects entering mass production stages, there is room for an increase in Raytheon's defense business profit margins. GE Aviation (GE.US): Underperforming the market Exane is cautious about GE Aviation, saying that the benefits from after-market market structure optimization and cost improvements are fading. The bank expects that the learning curve gains of the LEAP engine will slow down, and with Boeing Company accelerating the production of the 777X model, losses for the GE9X program will widen. The analyst models show that in the latter part of this decade, growth in post-market revenues will weaken as the number of LEAP engines entering maintenance peak decreases. L3Harris Technologies (LHX.US): Neutral L3Harris' stock price has risen significantly over the past few quarters, and Exane believes there is limited room for further expansion in valuation multiples. While the company is expected to benefit from missile defense projects and its Aerojet Rocketdyne division, current valuations already reflect significantly improved expectations. Boeing Company (BA.US): Underperforming the market The research team acknowledges the operational improvements under CEO Dave Calhoun's leadership at Boeing Company but says that Wall Street's expectations for aircraft production and cash flow are overly optimistic. Exane believes that as air travel growth slows down and previous tariff-driven orders expire, Boeing Company's order-to-delivery ratio may be difficult to maintain. The bank also expects that the company's debt burden and upcoming debt maturities will consume most of its free cash flow in this decade. Lockheed Martin (LMT.US): Outperforming the market The bank believes that Lockheed's missile projects and international demand are key growth drivers, especially under the US "Golden Dome" missile defense program. Exis also expects that with an increase in the launch frequency of the United Launch Alliance's "Vulcan" rocket, including launch commitments related to Amazon.com, Inc.'s Kuiper constellation, the profitability of the space department will improve. He wrote that concerns in the market about the F-35 program and recent classified costs have already been fully reflected in the stock price. Kratos Defense & Security Solutions, Inc. (KTOS.US): Neutral Exane acknowledges Kratos' widespread presence in defense technologies, from drones to hypersonic technology, but says that the stock has risen significantly and is overvalued compared to peers. Future potential contract wins or earnings improvements are possible, but the bank remains cautious about its valuation. General Dynamics Corporation (GD.US): Outperforming the market The bank predicts that General Dynamics Corporation's performance in Gulfstream business jets, submarines and shipbuilding projects, and mission systems technology department will all improve. As production progresses, the new models of Gulfstream will improve profit margins, and initiatives to resolve shipbuilding bottlenecks in the US are expected to benefit the maritime segment. Northrop Grumman (NOC.US): Outperforming the market Cost overruns on the B-21 bomber this year have dampened market sentiment towards Northrop Grumman, but Exane believes that the project is approaching a more profitable stage. Analysts expect spending on several projects at Northrop (from missile defense to classified space projects) to accelerate; as research-intensive work transitions to the procurement stage, there is room for profit margin growth. Howmet Aerospace (HWM.US): Outperforming the market Exane states that Howmet Aerospace's premium valuation is reasonable - the company has consistently performed well in pricing, market share, and spare parts demand. The bank expects commercial aviation manufacturing rates to exceed expectations, while non-aerospace sectors such as industrial gas turbines and commercial hubs will also provide incremental support. HEICO Corporation (HEI.US): Neutral This aftermarket parts supplier remains a dominant force in the PMA (Part Manufacturer Approval) market, and Exane expects Heico International to expand this leading advantage. However, analysts point out that large-scale acquisitions may slow down until the company reduces leverage, and the high valuation of the stock makes their stance more cautious.