Al Root
Geopolitical tensions are running high, but shares of major defense contractors are lower on Monday. Investors appear to believe fighting in the Middle East will be relatively contained.
Shares of Lockheed Martin, Northrop Grumman, General Dynamics, and L3Harris Technologies gained an average of almost 3% on Friday after Israel launched strikes on Iran, targeting its ability to develop nuclear technologies.
The attack, called "Operation Rising Lion," was the largest attack on Iran since the Iran-Iraq war, which began in the 1980s, according to The Wall Street Journal. Iran responded in an operation dubbed "True Promise III," launching missiles into Israel.
Despite the escalation, shares of the four defense contractors were down an average of 3% on Monday, while the S&P 500 and Dow Jones Industrial Average were up 1.1% and 0.9%, respectively.
Oil prices were lower as no significant infrastructure appears to have been hit by Israel. That's one reason defense shares are lower.
Another is that defense stocks typically don't get lasting gains from acute actions by combatants. Things remain tense between Israel and Iran, and between Russia and Ukraine. Reports of new attacks only reinforce the point.
Another important reason is that Iran has signaled its willingness to negotiate, according to a report in the Journal.
Shares of smaller-capitalization defense contractor Kratos Defense & Security Solutions were up 1.2% at $42.24. J.P. Morgan analyst Seth Seifman raised his price target to $44 from $33, but kept a Hold rating on the stock. Kratos focuses on unmanned systems, giving them "growth potential," says Seifman. Still, Kratos stock trades for north of 80 times estimated 2025 earnings.
Write to Al Root at allen.root@dowjones.com
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June 16, 2025 12:57 ET (16:57 GMT)
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