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Sequester to Hit Defense Hard: Analyst

Thursday, 28 Feb 2013 | 5:40 PM ET
Sequester's Effects on Defense Companies: Analyst
The $1.2 trillion in federal spending cuts could reduce earnings by some defense names by as much as 70 percent, CRT Capital analyst Brian Ruttenbur says.

The $1.2 trillion in federal spending cuts could reduce earnings of some defense names by as much as 70 percent, CRT Capital analyst Brian Ruttenbur said Thursday.

On CNBC's "Fast Money," he said that large-cap defense names, such as Lockheed Martin, Northrop Grumman, General Dynamics, Raytheon and L-3, earnings could take a hit of about 15 percent or so on average.

For the small caps, the pain could mean a 70 percent hit to earnings, Ruttenbur added.

"It could get really ugly for the small guys," he said. "The big guys are probably going to be OK, but there needs to be a revaluation."

Ruttenbur also said that defense stocks would take a hit of 30 to 50 percent for small caps and about 15 to 20 percent for large caps.

For those scenarios to play out, Ruttenbur estimated a time frame.

"I think the sequester has to last more than four, five months," he said. "I think that what we'll end up having is a continuing resolution throughout this fiscal year, and that's going to take some of the punch out of the sequester cuts."

Trader disclosure: On Feb. 28, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long MSFT; Guy Adami is long AGU; Guy Adami is long NUE; Guy Adami is long BTU; Jon Najarian is long CRM PUTS; Jon Najarian is long MNST ; Jon Najarian is short MNST Calls; Jon Najarian is long SPY PUT SPREADS; Jon Najarian is long VIX 1:2 CALL SPREADS; Anthony Scaramucci is long AAPL; Anthony Scaramucci is long C; Anthony Scaramucci is long GS; Anthony Scaramucci is long INTC; Anthony Scaramucci is long WMT; Anthony Scaramucci is long BBRY.

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