BNP Paribas Exane on Wednesday initiated coverage of a dozen U.S. aerospace and defense companies, arguing that investors should be selective as commercial aerospace faces tougher comparisons while defense spending is poised to accelerate in 2026. The firm sees greater upside among suppliers and defense-focused contractors than among large commercial original equipment manufacturers, or OEMs.
Senior analyst Matthew Akers said the sector has enjoyed strong book-to-bill momentum, but some of that strength is unlikely to repeat. In commercial aerospace, Exane prefers parts and subsystem suppliers, rating RTX (RTX), TransDigm Group (TDG) and AeroVironment (AVAV) positively, while beginning coverage of Boeing (BA) and GE Aerospace (GE) with negative views. On the defense side, the team expects a 2026 U.S. budget resolution to unlock demand, with Lockheed Martin (LMT), Northrop Grumman (NOC) and AeroVironment (AVAV) highlighted as top picks.
Below are key calls from the new coverage:
AeroVironment (Outperform)
Exane argues the company sits at the center of several Pentagon priorities, from small unmanned aircraft to counter-drone systems and space-related technologies. Demand for loitering munitions and tactical drones has surged in recent conflicts, and the firm expects AeroVironment’s (AVAV) AxS segment to expand at a mid-teens pace.
The rBlueHalo acquisition broadened its footprint into areas such as laser communications, EW, RF satcom and space electronics. Exane values the stock at 7.4 times full-year 2027 revenue, citing a premium warranted by growth prospects.
TransDigm (Outperform)
Analysts see the aircraft-parts manufacturer positioned to outperform conservative estimates, especially in margins for 2026 and 2027. Exane said concerns that TransDigm’s (TDG) acquisition-driven model is running out of runway are misplaced, noting the company still has ample capacity for deals and capital returns.
The firm also assumes a $100 special dividend next year and says a bullish scenario involving more M&A could boost returns to roughly 65%.
RTX (Outperform)
The bank expects stronger-than-projected output at RTX (RTX) unit Collins Aerospace as supply-chain bottlenecks ease, improving prospects for original-equipment sales.
Pratt & Whitney is also expected to gain momentum as the geared turbofan (GTF) fleet matures and legacy V2500 engines remain in service longer than anticipated. Meanwhile, Exane sees room for Raytheon’s defense margins to rise as key programs move into production.
GE Aerospace (Underperform)
Exane takes a cautious stance on GE Aerospace (GE), arguing that the tailwinds from aftermarket mix and cost improvements are fading. The firm expects slower learning-curve gains on LEAP engines and rising losses on the GE9X program as Boeing (BA) ramps the 777X.
The analysts’ model points to weaker growth in out-of-warranty aftermarket revenue later this decade, with fewer LEAP engines aging into peak maintenance years.
L3Harris (Neutral)
Shares of L3Harris (LHX) have climbed significantly in recent quarters, and Exane sees limited room for multiple expansion. While the company is positioned to benefit from missile-defense programs and its Aerojet Rocketdyne unit, the valuation already reflects substantial improvement.
Boeing (Underperform)
The research team acknowledges operational improvements at Boeing (BA) under Chief Executive Kelly Ortberg, but says Wall Street’s expectations for aircraft production and cash flow are too optimistic.
Exane argues Boeing’s (BA) book-to-bill ratio may not hold up as traffic growth moderates and as past, tariff-driven orders roll off. The firm also expects the company’s debt load and upcoming maturities to absorb most free cash flow through the decade.
Lockheed Martin (Outperform)
Lockheed’s (LMT) missile programs and international demand are seen as key growth drivers, particularly under the U.S. “Golden Dome” missile-defense initiative.
Akers also expects space-segment profitability to improve as United Launch Alliance’s Vulcan rocket increases launch cadence, including commitments tied to Amazon’s (AMZN) Kuiper constellation. Concerns about the F-35 program and recent classified charges, he writes, appear fully priced into the stock.
Kratos Defense (Neutral)
Exane recognizes Kratos’ (KTOS) broad exposure to defense-tech categories, from drones to hypersonics, but says the stock has already run significantly and looks expensive relative to peers. Potential upcoming contract wins could add to estimates, but the firm remains cautious about valuation.
General Dynamics (Outperform)
The bank forecasts improving performance for General Dynamics (GD) across Gulfstream business jets, submarine and shipbuilding programs, and its Mission Systems technology arm. Gulfstream’s newer models should lift margins as production ramps, while U.S. efforts to fix shipbuilding bottlenecks are expected to benefit the Marine segment.
Northrop Grumman (Outperform)
Sentiment toward Northrop Grumman (NOC) has been weighed down by this year’s cost charge on the B-21 bomber, but Exane believes the program is moving closer to a more profitable phase.
The analysts expect faster outlay growth on multiple Northrop programs, from missile defense to classified space, and see room for margins to rise as development-heavy work transitions to procurement.
Howmet Aerospace (Outperform)
Howmet’s (HWM) premium valuation is justified, according to the firm, as the company continues to outperform on pricing, share gains and spares demand. Exane sees stronger-than-expected commercial build rates and incremental help from non-aero segments such as industrial gas turbines and commercial wheels.
Heico (Neutral)
The aftermarket-parts supplier remains the leading force in the PMA market, and Exane expects Heico (HEI) to widen that lead. However, the analysts note that big acquisitions may slow until the company reduces leverage, and the stock’s steep valuation drives a more cautious stance.