The Aerospace & Defense Sector at a Pivotal Inflection Point: Strategic Opportunities Amid Geopolitical Uncertainty and Record Defense Spending

The aerospace and defense (A&D) sector is undergoing a seismic shift, driven by a confluence of geopolitical tensions, surging defense budgets, and technological innovation. As global leaders prioritize national security and infrastructure resilience, the A&D industry is positioned at a critical inflection point. The Gabelli Funds' 31st Annual Aerospace & Defense Symposium, scheduled for September 4, 2025, offers a rare window into this transformation, spotlighting companies with strong growth catalysts, undervalued equities, and M&A readiness. For investors, this sector's high barriers to entry, long-term contract visibility, and margin resilience make it an attractive haven in an uncertain macroeconomic landscape.

The Catalysts Driving the A&D Sector's Inflection Point

The NATO meeting on June 5, 2025, marked a watershed moment, raising defense spending targets to 5% of GDP for member states. This global shift is mirrored in the U.S., where the Department of Defense's 2026 budget request exceeds $850 billion. Such spending surges are fueling demand for advanced defense systems, satellite technology, and next-generation capabilities like AI and autonomy. The A&D sector's unique characteristics—long product cycles, high capital intensity, and limited competition—create a self-reinforcing cycle of growth and profitability.

The symposium's focus on M&A activity underscores this dynamic. With defense budgets expanding and geopolitical risks persisting, companies are consolidating to enhance operational efficiency and secure mission-critical capabilities. For example, Rheinmetall AG's joint venture with ICEYE to develop military satellites and its acquisition of Loc Performance in 2024 highlight the sector's strategic pivot toward innovation and scale.

Undervalued Equities: Rheinmetall AG and the Power of Defense-Centric Growth

Rheinmetall AG (XTRA:RHM) exemplifies the sector's potential. In Q2 2025, the company reported €2.48 billion in revenue, a 24% year-over-year increase, driven by its defense-oriented segments. Its order backlog now stands at €63 billion, with the Weapon and Ammunition segment alone holding €21.593 billion in future contracts. Despite these fundamentals, Rheinmetall's stock trades at a 32.12% discount to the analyst price target of €2,110.00. This disconnect may stem from short-term concerns over capital expenditures and M&A uncertainty, but the company's Vision 2030 targets—sales of €40–50 billion by 2030—suggest significant upside.

The company's recent investments, including a €188 million expansion of its Lower Saxony ammunition plant and a €75 million upgrade to its Weeze facility for F-35 production, position it to capitalize on long-term demand. Analysts project 26% annual revenue growth, outpacing the German Aerospace & Defense industry's 22% forecast. For investors, Rheinmetall represents a compelling case of a defense champion trading below intrinsic value.

HEICO Corporation: Leveraging Organic Growth and Strategic Acquisitions

HEICO Corporation (HEI) is another standout, with Q2 2025 earnings of $1.12 per share—surpassing estimates—and revenue of $1.1 billion. The company's Flight Support Group and Electronic Technologies Group are driving growth through organic performance and acquisitions like Rosen Aviation LLC. HEICO's cash flow from operations rose 45% to $204.7 million, and its stock surged 6.4% in after-hours trading following the earnings report.

HEICO's decentralized business model and acquisition strategy enable it to scale efficiently in high-margin aerospace and defense markets. With a 27% increase in consolidated net income and a 18% rise in EBITDA, the company is well-positioned to sustain its mid-to-high single-digit growth trajectory. Analysts highlight its ability to navigate supply chain constraints and geopolitical headwinds, making it a resilient long-term play.

Moog Inc.: Precision Motion Control and Strategic Partnerships

Moog Inc. (MOG.A) is leveraging its expertise in precision motion control systems to secure a foothold in the defense sector. In Q2 2025, the company reported $935 million in sales, with its Military Aircraft segment growing 6% year-over-year. Moog's recent acquisition of COTSWORKS Inc. for $63 million and its partnership with S3 AeroDefense to distribute global sustainment solutions underscore its commitment to expanding its addressable market.

Despite a slight decline in operating margins due to the absence of a one-time tax credit, Moog's free cash flow increased by $86 million, and its 12-month backlog remains robust at $2.5 billion. Analysts project 21.7% annual earnings growth, outpacing the U.S. market average of 15%. Moog's stock, trading at a 34% discount to intrinsic value, offers a compelling entry point for investors seeking exposure to the defense industrial base.

M&A Readiness and Supply Chain Resilience

The symposium's emphasis on supply chain resilience highlights a critical growth lever. Companies like Rheinmetall and Moog are prioritizing acquisitions and supplier partnerships to mitigate bottlenecks. For instance, Rheinmetall's joint bid for Iveco's defense unit and Moog's collaboration with S3 AeroDefense reflect a sector-wide shift toward securing end-to-end capabilities. Investors should monitor these trends, as M&A activity is likely to accelerate in 2026.

Investment Thesis and Strategic Recommendations

The A&D sector's high-margin, high-barrier structure makes it a defensive yet growth-oriented asset class. For investors, the key is to identify companies with:
1. Strong order backlogs and long-term contract visibility (e.g., Rheinmetall's €63 billion backlog).
2. Margin resilience and operational efficiency (e.g., HEICO's 45% cash flow growth).
3. M&A readiness and strategic partnerships (e.g., Moog's COTSWORKS acquisition and S3 partnership).

Undervalued equities like Rheinmetall and Moog offer attractive risk-rebalance opportunities, while HEICO's consistent outperformance validates its long-term potential. As defense spending continues to outpace GDP growth, the sector's inflection point is not a fleeting trend but a structural shift. Investors who act now can position themselves to capitalize on the next decade of A&D innovation and consolidation.

In conclusion, the Gabelli symposium serves as a roadmap for navigating the A&D sector's complexities. By focusing on companies with strong catalysts, undervalued metrics, and M&A readiness, investors can harness the sector's momentum in an era of geopolitical uncertainty and record defense spending. The time to act is now—before the next wave of consolidation and innovation reshapes the industry.