Space National Guard or not, these companies will benefit

VaselineSeptember 11, 2024

0 3 minutes read

Space National Guard or not, these companies will benefit

Donald Trump recently proposed the creation of a Space National Guard. The Biden administration prefers to use the Space Force as is. For defense contractors, it works either way.

In 2018, then-President Donald Trump instructed the Department of Defense to establish a sixth branch of the US Armed Forces—a Space Force separate from the Air Force. Eighteen months later, the US Space Force came into existence when half of the 35,000 civilian and military employees of the US Space Command and the US Air Force Space Command (AFSPC) moved to form the new service.

Since then, this number has grown to approximately 14,500 total “Guardians”, which includes the USSF, of which less than 10,000 are active duty military. But the Space Force might get a little bigger soon. Because as the 2024 campaign season heats up, presidential candidate Donald Trump called for the creation of something new: a National Space Guard.

Advertising posters for space exploration.

Image source: Getty Images.

Uncle Sam wants you (to go into space)!

Currently, the Space Force relies on Air National Guard units to fill its ranks. Military times it is estimated that about 10% of the Guardsmen serving in the Space Force are actually drawn from the Air National Guard.

Now, the Air Force doesn’t like this arrangement and has suggested that the Space Force recruit more full-time Rangers rather than get part-time support from the ANG. But speaking at the National Guard Association conference in Detroit last month, Trump proposed an alternative. He argued that it was time to create an independent Space National Guard to complement the Space Force.

This idea is not new. There are actually two bills making their way through Congress that would establish a Space National Guard “as the primary combat reserve component of the Space Force.” But the Biden administration opposes that idea, advocating instead for the Air Force plan to simply expand the Space Force.

But if there’s one thing both political parties already agree on, it’s that the Space Force is destined to grow and will require more resources as time goes on. In a tight national defense budget, growing the Space Force could logically (to some extent) come at the expense of growing the Air Force.

And here investors can find an opportunity. Because if one service shrinks and the other grows — or simply grows faster — defense stocks stressing the space over Airspace will likely benefit more.

How to Invest in Space (Forces)

What are these growing space companies, you ask?

I write a lot about space and defense, and I pay particular attention to where these two areas overlap: defense contracts awarded for space services. Over the past few years, we’ve seen which defense companies are expanding their space businesses and winning defense contracts relevant to the growth of the Space Force—and which companies are losing out. Among America’s biggest defense stocks, I’d say Huntington Ingalls, Textronand especially Boeing are the three companies least relevant to an expanding Pentagon focus on space.

Boeing, although traditionally considered one of the lead space stocks, has lost steam as profit margins from its United Launch Alliance (ULA) joint venture with Lockheed Martin (LMT -0.76%) shrinks, and his Starship space capsule remains plagued by technological problems.

However, speaking of Lockheed, unlike the three Lockheed, Northrop Grumman (NIGHT -0.81%)and L3Harris (LHX -0.60%)are the three companies that win. All three are major beneficiaries of the Space Force’s Proliferated Warfighter Space Architecture missile defense project, for example. Additionally, both Northrop Grumman and Lockheed Martin have sizeable missile launch businesses (Lockheed is managed through its 50% stake in ULA). while L3Harris owns rocket engine maker Aerojet Rocketdyne.

General dynamics (G.D 0.28%)Meanwhile, it’s kind of a wild card. On the one hand, the main focus of the company’s defense is on land and naval warfare. On the other hand, General D has carved out a profitable niche in space as well, just last week winning a $492 million follow-on contract to build ground stations to process data provided by orbiting Northrop, L3 and Lockheed satellites above.

Where to invest in space

None of these big four “space defense stocks,” however, are particularly cheap. Valuations range from a low of around 20 times earnings (not absurdly expensive, but not a great deal either) at Lockheed Martin to over 30 times earnings at L3Harris and Northrop. At 23 times earnings and a projected long-term growth rate of 14%, General Dynamics is probably the closest thing to a business in the group — but at a PEG ratio of 1.6, even General D it seems expensive to me.

As things stand today, I honestly can’t recommend any of these defense stocks. But time passes and ratings change. What is expensive today may be cheap tomorrow.

If you’re looking for a good space stock to invest in, well, at least now you know where to look when valuations become more attractive.

VaselineSeptember 11, 2024
0 3 minutes read

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Uncle Sam wants you (to go into space)!

How to Invest in Space (Forces)

Where to invest in space

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