To close out the week we got the U.S. budget proposal, with $163B in planned cuts to support a 13% increase to defense spend (>$1T) that got the entire sector jumping.

We’ve been talking about defense a lot lately, but here’s one more thought: maybe it’s time to start thinking about a capital rotation within defense, from products into services.

We think it makes intuitive sense. All the excitement has been around new spend linked to equipment procurement and projects. That’s been at least partially reflected in valuations.

Once these investments are made and projects get built, the serviceable market should expand and we wouldn’t be surprised to see the gap close.

You might be interested in…

About Bullpen: Bullpen Finance Inc. publishes content on Canadian markets and provides paid research coverage of select Canadian issuers. Bullpen is paid in cash by covered issuers, does not accept stock or options, does not hold positions in covered securities, and does not conduct investment banking business. Bullpen and LodeRock Advisors Inc. are affiliated; LodeRock provides investor relations services to issuers, some of whom are covered by Bullpen Research. When a post discusses a covered issuer, a specific disclosure appears at the top of the post. This post is published for general information purposes. It is not personalized investment advice and is not tailored to any individual reader’s circumstances. Bullpen is not a registered investment adviser or dealer. For full disclosures, including analyst certification, jurisdictional statements, and conflict of interest policies, please see our Legal & Disclosures section on our website.