Deutsche Bank Warning: Do not be obsessed with short-term premiums, the key to the long bull market of defense stocks lies in the success of the US military in wartime.

After Trump launched Operation Epic Fury against Iran, Deutsche Bank released a research report stating that, in terms of the long-term prospects of the US defense sector, quickly resolving conflicts and successfully achieving America's war goals will ultimately be more advantageous than a prolonged conflict. Deutsche Bank stated that this viewpoint may sound counterintuitive, as a long-term conflict would drive greater weapon consumption and demand in the short term, and could bring greater upside potential for additional appropriations for the defense department in the near term. However, this upside potential is capitalized at relatively lower price-to-earnings ratios, even though an increase in political risk premiums for GEO Group Inc could bring temporary benefits. Looking at the medium to long term, the report believes that by achieving success in wartime, legitimizing US military spending in the eyes of voters and politicians will result in higher valuation multiples. This could potentially expand political alliances willing to support long-term military spending. In other words, quickly achieving war goals could prompt voters and some individuals in Washington to establish a causal link between US military spending and favorable outcomes for America. This is a stark contrast to the prevailing view over the past two decades, when military spending was often associated with negative outcomes. Additionally, quickly resolving conflicts could be more politically beneficial for the Republican Party, possibly supporting the outcome of the 2026 midterm elections and helping to achieve the fiscal year 2027 Department of Defense budget goals. On the other hand, a longer conflict could drive greater near-term weapon consumption and budget support through operational needs. However, this could come at the expense of legitimacy of the use of force and the perceived value of military spending, and if there are larger losses of American personnel or negative economic impacts, it could bring political risks for the Republican Party. In summary, the report believes that a quick resolution of the conflict to achieve America's war goals will support a more favorable outlook for the long-term prospects of the defense sector; while a prolonged conflict may be more advantageous for defense stocks in the short term, but less so in the long term. Reaffirming the value of war assets Deutsche Bank analysts believe that companies that could benefit from Operation Epic Fury and its related impacts are primarily distributed in the following segments: Ammunition and precision-guided weapon suppliers: Boeing Company (BA.US) as the original equipment manufacturer (OEM) of JDAM (Joint Direct Attack Munition) and SDB-I (Small Diameter Bomb) directly benefits from the high consumption rate and sustained demand intensity of these systems; Woodward (WWD.US) has a large content of components in both JDAM and SDB-I systems, making it an important beneficiary. High-end strategic platforms and defense system main contractors: Lockheed Martin (LMT.US), Raytheon Technologies (RTX.US) and Northrop Grumman Corp. (NOC.US). The report believes that the current pace of combat will increase the wear and tear of US military assets, which could drive growth in the demand for defense aftermarket, which is a positive factor for companies like GE Aerospace (GE.US), Howmet Aerospace (HWM.US), and TransDigm (TDG.US). Dependence of airlines on the blessings and disasters Deutsche Bank stated that if the conflict persists for months or even years, it could lead to delays in aircraft deliveries in affected regions, sustained high fuel prices, and thereby weaken the profitability of global airlines. Additionally, wide-body aircraft maintenance, repair, and overhaul (MRO) centers in the Middle East may face risks of operational disruptions and labor shortages (especially loss of foreign workers). However, the bank pointed out that if the US successfully pushes for regime change in Iran, a vast market with 90 million educated people, and has been largely isolated from Western civil aviation systems since 1979, may reopen. This would be a significant opportunity for Western aerospace manufacturers to boost long-term growth prospects.