Analysts from TD Cowen and Morgan Stanley highlighted “the Israel situation” as a key factor driving defence industry revenues during General Dynamics’ earnings call last Wednesday (25 October).

On the earnings call, vice-president and chief financial officer Jason Aiken announced that General Dynamics had generated net profits of $836m throughout Q3 2023. This represents a 6% year-over-year increase on Q3 revenue of $10.6bn.

“Hamas has created additional demand, we have this $106 billion request from the president,” said Cai von Rumohr, managing director and senior research analyst at TD Cowen.

On 26 October, the day after the earnings call, von Rumohr assigned a “buy” rating to General Dynamics’ stock – of which TD Asset Management holds more than $16m.

Escalating conflict, soaring profits

The world’s largest defence companies, primarily based in the US, look set to generate increased profits amid conflicts in the Middle East and Ukraine.

General Dynamics reported total revenue of $39.4m last year, the company’s highest since before 2017, according to GlobalData research.

“The Israel situation obviously is a terrible one, frankly, and one that is just evolving as we speak, but I think if you look at the incremental demand potential coming out of that, the biggest one to highlight and that really sticks out is probably on the artillery side,” said General Dynamics’ Aiken.

Reports indicate that more than 8,000 Palestinians and 1,500 Israelis have been killed since the conflict broke out.

US President Biden’s pledge of $106bn in military and humanitarian aid for Israel and Ukraine has been well received by the world’s largest defence companies.

During Raytheon Technologies’ Q3 earnings call on 24 October, chairman and CEO Greg Hayes said Raytheon will “see a benefit of this restocking”. Morgan Stanley analyst Kristina Liwag added that the Israel-Palestine situation “seems to fit quite nicely with the Raytheon Defense portfolio”.

Massachusetts-based Raytheon manufactures the missiles used by Israel’s “Iron Dome” rocket defence system.

General Dynamics, the fifth-largest defence company in the world, supplies the Israeli military with weapons including MK-82 and 84 bombs, F-15, F-16 and F-35 warplanes, and an assortment of combat and armoured personnel vehicles.

In the week of the initial Hamas attack (7 October), exchange-traded funds tracking defence giants including Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon and Textron rose noticeably.

From 4–11 October, iShares US Aerospace and Defence ETF saw a 4% increase in net inflows, equating to $7.2m.

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