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Raytheon among stocks that may benefit from bigger missile defense spending because of North Korea

  • Betting on missile defense, Jefferies is optimistic toward companies such as Raytheon, Orbital ATK and Aerojet Rocketdyne as tensions with North Korea escalate.
  • The U.S. confirmed that a missile launched by the North Korean government on Tuesday was an ICBM, which has the potential to reach the United States.
  • On Wednesday afternoon, Raytheon was up 1.6 percent and Orbital ATK was up 2.14 percent.

The patriot missile is manufactured at Raytheon's Integrated Air Defense Center in Andover, Mass.
John Tlumacki | The Boston Globe | Getty Images
The patriot missile is manufactured at Raytheon's Integrated Air Defense Center in Andover, Mass.

Jefferies is optimistic toward companies such as Raytheon, Orbital ATK, and Aerojet Rocketdyne as tensions with North Korea escalate, leading to greater missile defense spending.

"The aggressive nature of the North Korean acts may cause Japan, South Korea, the U.S. Congress and the Administration to fund missile defense at an above average rate," wrote Jefferies equity analyst Howard Rubel in Wednesday's note.

The U.S. confirmed that a missile launched by the North Korean government on Tuesday was an intercontinental ballistic missile, or ICBM, which has the potential to reach the United States. After numerous attempts to goad the Chinese government into applying more economic pressure against Pyongyang, President Donald Trump is running out of diplomatic options.

While the U.S. continues to build its immature Ground Based Missile Defense system, radar and rocket manufacturers such as Raytheon are poised for federal funding, with geospatial imagery companies like DigitalGlobe also positioned for bumps, according to the Jefferies report.

"The Japanese have considered another program which would help defend their territory. If we go forward with some form of defense of Hawaii, that's a multi-billion dollar program," added Rubel on CNBC's "Power Lunch" earlier today. "The answer is: it's undecided how large the opportunity is for these contractors."

"Language in the House Armed Services Report for the FY18 DoD budget calls out the need for a plan to enhance the sharing of commercial imagery and national technical means with South Korea and Japan," added Rubel. The increased expenditure on weapons and defense, as well as the potential for further international partnership would bode well for American arms manufacturers.

On Wednesday afternoon, Raytheon traded approximately 1.60 percent higher while Orbital ATK was up 2.14 percent.

Earlier today, former U.S. ambassador to South Korea Christopher Hill told CNBC that he believes Americans will pay close attention to the U.S. response following this latest North Korean missile launch.

"In the short run, what they're very concerned about is the possibility that North Korea could have an ICBM that could hit the U.S. with a nuclear weapon," Hill told CNBC's "Squawk Box." "I think the American people will indeed ask the question you're asking, which is what is [Trump] going to do about it?"

Thus far, China has regarded the uptick in U.S. missile defense activity with disdain.

Plans for new modern defense weapons sales to Taiwan angered China last week as the U.S. State Department announced the $1.42 billion agreement. Prior to the arms sale, the U.S. shocked both South Korea and China by secretly deploying four more THAAD rocket launchers in South Korea.