Major U.S. defence contractors are reporting solid earnings as aircraft sales, missile demand and rising military budgets reshape the sector amid elevated geopolitical tensions.
BNN Bloomberg spoke with James Callahan, portfolio manager at Barometer Capital Management, about defence earnings, nuclear modernization programs, missile restocking and how broader policy changes are influencing defence and industrial stocks.
Key Takeaways
- Rising defence budgets are supporting strong earnings across U.S. defence contractors, particularly in aircraft and missile systems.
- Nuclear modernization programs are creating long-term revenue visibility for companies tied to strategic defence assets.
- Missile restocking is emerging as a key multi-year demand driver following elevated usage in recent years.
- Defence stocks are increasingly responding to policy shifts and spending commitments rather than short-term earnings results.
- Broader regulatory and fiscal changes are also influencing industrial and aerospace companies beyond pure defence exposure.
Read the full transcript below:
ANDREW: Defence supplier Northrop Grumman reported higher fourth-quarter profit and revenue, driven by strong aircraft sales amid heightened geopolitical uncertainty. Let’s get more from James Callahan, portfolio manager at Barometer Capital Management. Great to see you again. Thanks very much for joining us. Talk to us about Northrop Grumman. Is nearly all of its business defence-related?
JAMES: Thanks, Andrew. It’s great to be here. Nearly all of Northrop Grumman’s business is defence. For U.S. defence companies, the stars have really aligned lately. We’ve seen some massive tailwinds, which we can talk through. Specifically on the quarter, I thought it was a very strong result. The stock traded off slightly in premarket trading, but it’s now back in positive territory to start the day.
If you had to nitpick, I’d point to two areas. First, 2026 earnings guidance came in a little below expectations, which explains the initial weakness. Second, backlog growth was a bit lighter than I would have liked. That said, over the longer term, I wouldn’t worry too much about it. Like many U.S. defence names, Northrop Grumman is strategically important to the U.S., particularly its nuclear programs, as it now owns two legs of the U.S. nuclear triad. These are large, long-duration programs that should generate profits for many years. Those include the Sentinel intercontinental ballistic missile program and the B-21 Raider strategic bomber. As U.S. defence budgets move higher, that should benefit Northrop Grumman.
ANDREW: So we’re talking, at least in part, about nuclear weapons here?
JAMES: Yes, absolutely. These are very large and very important projects for the U.S. military and the country more broadly. That’s against a backdrop of the president very publicly expressing a desire to raise the U.S. defence budget to about US$1.5 trillion by next year, up from just under US$1 trillion today — an increase of more than 50 per cent. Normally, defence budgets don’t grow by that magnitude, so it’s been a big positive for the sector.
Defence is typically a sleepier space, and these stocks don’t usually move much on earnings. They tend to trade on budget changes and contract wins or losses. But as global attention has shifted toward defence spending, it’s created a very favourable environment for these companies.
ANDREW: Is Northrop Grumman a stock you own right now?
JAMES: No, we’ve owned it in the past, but we don’t own it currently. I like the look of it, but we’ve focused on other names, such as RTX, formerly Raytheon. They also reported this morning and posted very strong results, beating expectations on both revenue and earnings. Management highlighted missile sales to NATO countries and Patriot missile system sales as key drivers.
Missile restocking has been a major theme for the sector. Over the past few years, a significant number of missiles and munitions have been used and will need to be replaced. In addition, we’re learning more about the so-called Golden Dome project, the North American missile defence initiative. Details are still emerging, but it should benefit Raytheon directly. They produce the Patriot missile and supply components for Israel’s Iron Dome system, which are expected to be used in Golden Dome as well. The tailwinds for these companies are hard to ignore.
ANDREW: Boeing is not a stock you own, but it does have a large defence business.
JAMES: It does. Boeing has been an interesting one. The stock has performed well over the past several months. It’s not quite at the point where we’d want to get involved, but there’s good line of sight to a return to profitability this year. After that, the conversation likely turns to reinstating the dividend, which would be encouraging.
Boeing reports aircraft deliveries monthly, and deliveries troughed in the fourth quarter of last year at 57 planes. They’re now back to roughly 160 deliveries per quarter, and that figure should continue to rise. The company has worked closely with regulators to address serious issues, and while we don’t own the stock, the trajectory has improved meaningfully.
ANDREW: What about General Motors? Is that a stock you’re interested in?
JAMES: We don’t own it, but it’s been something of a head-scratcher. The stock has performed well over the past year despite a weak auto market, which has surprised many investors. A big driver was a regulatory change in the One Big, Beautiful Bill passed last year. GM previously paid quarterly fines because its fleet emissions exceeded regulatory thresholds, but those penalties were eliminated. That added roughly US$1 billion a year in pure profit.
From this morning’s results, we’re also seeing profitability improvements elsewhere. Even with volumes down, which is usually a negative for automakers, GM’s vehicle mix is improving as it sells more higher-margin models. The company raised guidance for share buybacks and dividends, which is positive to see.
ANDREW: One more defence stock I want to ask you about is General Dynamics, which makes the Abrams tank.
JAMES: Yes, we do own General Dynamics, though we like it more for its business jet exposure. The company also owns Gulfstream. We currently own all of the major business jet manufacturers. It’s been a strong business jet market. We own Embraer, and we also own Bombardier in Canada.
Following another change in the One Big, Beautiful Bill, U.S. companies and individuals can now fully depreciate private jet purchases in the first year. That’s made an already tight jet market even stronger. These manufacturers are also expanding their maintenance, repair and overhaul businesses, which carry higher margins and help build backlog through long-term service agreements. We’ll see how General Dynamics does when it reports, but it’s a name we continue to like and own.
ANDREW: Of course, the Abrams tank alone can cost more than US$10 million per unit once training and maintenance are included, so this hardware doesn’t come cheap. James, thanks very much for joining us.
JAMES: Thanks, Andrew.
ANDREW: James Callahan, portfolio manager at Barometer Capital Management.
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This BNN Bloomberg summary and transcript of the Jan. 27, 2026 interview with James Callahan are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
