Space sector has been categorised as one of the fastest growing sectors globally over past several years. As per the report by McKinsey, space industry has the potential to be worth over $1 trillion by end of this decade, exhibiting a rise from $280 billion at 2010 end and $447 billion 2022 end. One of the critical growth drivers in this industry is advent of firms which continue to send satellites in space, for tasks ranging from climate change to evaluating daily card transactions. Therefore, this can be the ideal time for top space stocks to buy for long-term growth.
Commercial space assets continue to behave like revenue drivers for a range of space companies and governments globally are increasing their budgets for expenditures in this industry. However, it is believed that these expenses will help the companies to take advantage of growth trends. As per space advocacy group named Space Foundation, the companies which are operating in this space industry increased their revenues to over $420 billion average at 2022 end, exhibiting a rise from $396 billion in prior year. Around one-third of such revenue was due to support for space activities, like maintenance of ground stations. Therefore, several Wall Street analysts believe that top space stocks to buy are the ones which have support services.
Biggest sale numbers for a range of space firms came in as proceeds from sale of satellite data, according to advocacy group. Such proceeds made up for ~39% of all the commercial revenue which was generated by space firms in the year 2022. Growth numbers from several space companies seem to be more impressive because several organisations in sector cater to the startup field. With higher inflation and muted venture capital interest as a result of increased interest rates, space startups were able to attract only $20 billion from the Wall Street in the previous year. This was the step down from record high of $47 billion in the year 2021.
With this in mind, we will now have a look at top space stocks to buy as per global fund managers.
1. Howmet Aerospace Inc.
The company produces products which are utilised in aerospace, commercial transportation, and industrial and other markets.
In 3Q23, its revenues came in at $1.66 billion, exhibiting a rise of 16% year over year as a result of commercial aerospace, which increased by 23% year over year. Net income of the company came at $188 million in comparison to $80 million in 3Q22 and EPS was $0.45 against $0.19 in 3Q22. It saw 3Q23 operating income margin coming at ~18.5%.
Adjusted EBITDA of the company, excluding special items, came in at $382 million, exhibiting a rise of 18% year-over-year. It generated $191 million cash from operations and $132 million of FCF. The company’s cash used for financing activities came at $243 million and $58 million of cash was used for investing activities.
On August 23, 2023, Fitch Ratings upgraded the company’s long-term issuer default rating to “BBB” from “BBB-”. This moved the company from 1-2 notches above investment grade on the credit rating scale. In 3Q23, the company surpassed high end of all the aspects of guidance range, with its adjusted EBITDA margin rising to healthy ~23.0%, and adjusted EPS increasing 28% year-over-year.
For 2023, it expects revenues in the range of $6.53 billion- $6.56 billion and adjusted EBITDA of between $1.48 billion- $1.49 billion.
2. Kratos Defense & Security Solutions, Inc.
The company develops and fields transformative, affordable technology, platforms, and systems.
It has reported its third quarter 2023 financial results, which saw revenues coming in at $274.6 million, operating income at $12.2 million, net loss at $1.6 million and adjusted EBITDA at $27.7 million. Included in 3Q23 net loss and operating income is the non-cash stock compensation expense to the tune of $6.4 million and company-funded Research and Development (R&D) expense which came in at $10.3 million.
3Q23 revenue growth exhibits 20.1% organic growth in comparison to 3Q22. In 3Q23, it saw cash flow used from operations of $0.1 million, which exhibits working capital requirements related to the 6.9% revenue growth of $17.7 million in comparison to 2Q23. The company saw consolidated bookings of $282.3 million and the book-to-bill ratio of 1.0 – 1.0 for 3Q23, and consolidated bookings of $1.11 billion and book-to-bill ratio of 1.1 – 1.0 for previous 12 months to October 1, 2023.
For 4Q, the company expects revenues in the range of $237 million – $257 million and R&D expenses of between $9 million-$10 million.
3. Northrop Grumman Corporation
The company is a defense contractor which is diversified throughout short-cycle and long-cycle businesses.
It has reported its 3Q23 financial results, with sales increasing 9% to $9.8 billion in comparison to $9.0 billion in 3Q22. 3Q23 sales exhibit strong demand for the company’s products and services. Its 3Q23 net earnings came in at $937 million, or $6.18 per diluted share in comparison to $915 million, or $5.89 per diluted share, in 3Q22.
This was another strong quarter which posted strong performance on programs, a new record backlog, and growth throughout all 4 of the company’s businesses. Its 3Q and YTD 2023 net awards totalled $15.0 billion and $33.9 billion, respectively, and backlog came in at $83.9 billion.
For 2023, the company expects its sales to the tune of ~$39,000 million and MTM-adjusted EPS to come in the range of $22.45 — $22.85. Adjusted free cash flow of the company is expected to be between $1,850 million — $2,150 million.
Conclusion
While above are some of the top space stocks to buy as per global fund managers, there are several other space stocks which are expected to perform well in the coming future.
Experts believe that commercial space sector should continue to form a critical part of overall space economy. They have projected that, in the time span of 5 years, this market should see a real acceleration and expansion of space and space assets.
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