America's top military contractors have literally been playing defense against Donald Trump, trying to shore up support for key contracts just as they are preparing to report fourth-quarter earnings.
Trump has used his bully pulpit as president-elect to criticize large contractors for program delays and costs he considers out of control, and it has meant Lockheed Martin and Boeing investors have seen occasions when those stocks felt the jabs.
"Even when you have contracts in place, there's going to continue to be pressure to execute on time, on budget and deliver even more than you promised," said Moody's analyst Russell Solomon, who covers the aerospace and defense industry.
The CEOs from Lockheed and Boeing have met separately with Trump in an attempt to allay his concerns about certain contracts.
Trump has criticized Lockheed's F-35 stealth fighter program, including during his Jan. 11 press conference when he said the F-35 is "way, way behind schedule and many, many billions of dollars over budget." Lockheed stock slid as much as 1.8 percent the day he took the swipe — and it wasn't his first time going after the aircraft.
Indeed, Trump's first slap at the F-35 was tweeted on Dec. 12, when he lashed out at the program's "out of control costs." Lockheed shares slidmore than 4 percent in early trading that day.
As for Boeing, Trump tweeted Dec. 6 about its new 747 Air Force One aircraft: "costs are out of control, more than $4 billion. Cancel order." Boeing stock fell as much as 1 percent in premarket trading that day but did manage to recover.
Given Trump's eagle eye for defense program spending, there is a possibility of new acquisition reform inside the Pentagon, and that could hurt contractor profitability.
"We think President Trump will continue to be outspoken on better pricing for defense programs with cost overruns, publicly encouraging companies involved to cut costs," Credit Suisse said in a research note Thursday. "While this greater emphasis on cost controls could result in a temporary dislocation of share prices, it is still very unclear how effective a Trump administration could be at reforming the acquisition process and adversely impact pricing and margins on certain programs. Even if there is some success on this front, it likely would not flow through to contractor financial results for some time."
There also are other reasons to be positive about the sector, according to analysts.
"Our DC discussions reaffirmed our view that there is strong consensus for higher levels of defense spending, although the mechanics to undo sequestration (Budget Control Act) are still to be determined," UBS analyst David Strauss said in a note Wednesday.
Analysts say obsolescence with some of the older equipment in the military arsenal is driving a portion of future spending as well as Trump's overall pledge to rebuild the armed forces.
"In the last defense spending cycle, I think we underinvested," said Richard Safran, Buckingham Research Group director of equity research. "We're playing a little catch-up ball in this spending cycle."
Safran expects the sequestration budget caps will be repealed to help fund some of the increased defense spending. Trump has already said he will ask Congress to do just that.