U.S. aerospace and defense stocks are heading into fourth-quarter earnings with expectations elevated after the group climbed about 15% since early December, far outpacing the broader market, according to a preview note from BNP Paribas analyst Matthew Akers.
He said the recent rally raises the risk of disappointment, even as fundamentals remain broadly supportive across the sector.
At Boeing (BA), Akers warned that investor optimism around free cash flow may have swung too far.
“Investor sentiment swung from very negative on the FCF outlook to overly positive,” he wrote in the Jan. 8 note to clients, saying that bulls are betting on a sharp rebound from roughly $2 billion this year to a “normalized” level above the company’s prior $10 billion guidance.
BNP Paribas is more cautious, expecting Boeing (BA) to stick closer to its existing outlook and for the cash recovery to arrive “more slowly than expected,” with the firm forecasting $9 billion of free cash flow by 2029, including a roughly $2 billion pension-related headwind.
For GE Aerospace (GE), Akers expects initial 2026 guidance to echo management’s earlier tone rather than exceed it. He sees a potential replay of last year, when early EBIT guidance aligned closely with the company’s roughly $1 billion year-over-year growth outlook.
While bulls may be looking for closer to $11 billion, Akers expects an initial outlook in the low $10 billion range and said it is likely to be viewed as conservative, limiting downside risk for the stock.
By contrast, Akers remains constructive on RTX (RTX), which he views as underappreciated despite mixed sentiment. He said BNP Paribas still sees upside in Collins Aerospace growth and Raytheon margins, and believes consensus free cash flow expectations for 2026, around the mid-$8 billion range, are reasonable and consistent with the company’s previously guided $8 billion to $8.5 billion target.
Across the group, BNP Paribas made modest estimate adjustments ahead of earnings, including a slight benefit to Boeing (BA) cash flow from fourth-quarter deliveries, a small upward tweak to GE’s (GE) 2026 EBIT outlook, and a trim to RTX (RTX) earnings tied to below-the-line items discussed at a recent investor conference. Akers said the firm raised price targets for most names to reflect the sector’s recent rerating, while reiterating its relative preferences, favoring RTX (RTX) over Boeing (BA) and GE (GE) into earnings.