Raytheon, Northrop Lead Defense Stock Downgrades by JPMorgan

JPMorgan downgraded Northrop Grumman Corp. (NOC), Raytheon (RTN) Co. and Harris Corp., three companies that were among the best defense investments in 2012.

“Following a year in which the group as a whole performed surprisingly well, we are downgrading some of the top performers,” analyst Joseph Nadol wrote today in a note to clients.

Nadol cut Raytheon, the largest missile supplier to the U.S. Defense Department, to neutral from overweight. The Waltham, Massachusetts-based company returned 23 percent in 2012 including dividend payments. Raytheon shares fell 1.1 percent to close at $57.74 in New York.

Northrop Grumman, maker of Global Hawk drones, was revised to underweight from neutral. The Falls Church, Virginia-based defense contractor returned 20 percent last year. Its shares declined 1.9 percent to $67.34.

Harris (HRS), a maker of communications equipment, was cut to underweight from neutral. The Melbourne, Florida-based company returned 40 percent last year. Harris shares fell 2.3 percent, the biggest decline in more than two months, to close at $48.91.

Defense contractors face automatic Pentagon cuts totaling about $45 billion this year unless the White House and lawmakers agree by March 1 to an alternate deficit reduction plan.

“We believe that Republicans as a group put a higher priority on spending cuts than they do on preserving the defense budget,” raising the risk no deal will be reached before the deadline, Nadol wrote in a separate note to clients today.

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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