J.P. Morgan: Aerospace industry will continue to "soar" in 2026, Boeing Company (BA.US) remains the top choice.

JPMorgan Chase's industry outlook, led by analyst Seth Seifman and released on December 19th, predicts that aerospace and defense stocks will receive broad support until 2026, with the commercial aerospace sector being the clearest highlight, while US defense stocks face a more selective and politically complex environment. In the aerospace sector, the bank states that the demand fundamentals remain strong, with supporting factors including Boeing Company and Airbus's years of production backlog, continued global air traffic growth, and the aging commercial aircraft fleet. JPMorgan Chase predicts that the gradual increase in aircraft production will support growth for original equipment manufacturers and the aftermarket market, particularly in areas such as engine maintenance where capacity constraints remain significant. Boeing Company remains the top choice The bank lists Boeing Company (BA.US), StandardAero (SARO.US), and ATI (ATI.US) as preferred targets in the aerospace sector, citing visible production growth, margin expansion, and valuation support. Boeing Company remains the top choice, with analysts pointing out that with increasing aircraft deliveries and stabilizing defense business execution, the company is expected to achieve significant cash flow growth in the later part of this decade. ATI is also gaining attention for its increasing exposure to aerospace and defense demand as customers seek alternative sources to Russian titanium. JPMorgan Chase states that despite the high valuations of aerospace stocks such as GE Aviation (GE.US) and Howmet Aerospace (HWM.US) following significant price increases in 2025, the bank maintains a constructive view on them, believing that earnings momentum and continued aftermarket demand may continue to drive upward moves, despite already high valuation multiples. Slight differences exist in the defense sector The outlook for the defense sector is more complex. While global military spending is on the rise against a backdrop of heightened political tension and increased burden-sharing among US allies, JPMorgan Chase warns that the US political backdrop brings uncertainty. The bank states that the current government's push to expand the defense industrial base beyond traditional prime contractors favors smaller and non-traditional companies, complicating the investment prospects for existing large enterprises. In the defense products sector, the bank is bullish on L3Harris Technologies (LHX.US), citing expectations of single-digit percentage revenue growth, margin expansion, and the recovery of its Aerojet Rocketdyne business. In the services sector, Leidos (LDOS.US) is of interest due to its attractive valuation, profit potential, and cash deployment flexibility. Lockheed Martin (LMT.US) rating lowered JPMorgan Chase downgraded Lockheed Martin's rating from "Overweight" to "Neutral" citing concerns about its long-term free cash flow growth, including resistance related to pension plans in the later part of this decade and uneven performance in some parts of its portfolio. While the company's missile business is expected to grow, the bank believes that the market's widespread expectations for cash flow expansion may be overly optimistic. Overall, JPMorgan Chase states that the industry remains favorable in 2026, but investors should be increasingly selective, particularly in the defense sector, where project execution, budget risks, and political dynamics could lead to divergent returns.