The U.S. Department of Defense budget request is increasing year over year, providing a significant tailwind for the defense industry. While companies are positioning to capitalize on the DoD’s high-level priorities, including the development of next-generation strike and sensing technologies, these same firms are having to communicate shifts in their capital allocation policies to shareholders.
During the last administration, cash-rich defense companies focused primarily on returning capital to shareholders, mostly through share repurchases.
However, as valuations have increased and stock prices have climbed, defense CEOs recognize that capital return strategies pose the threat of undermining future growth. Major defense companies have begun to shift away from share repurchases and more toward investment and now mergers and acquisitions.