The U.S. defense industry is entering the eighth year of a prolonged downturn in Pentagon demand for weapons, but you would never know that to look at the third-quarter earnings releases of the biggest companies. Sales are rising and earnings are strong. Share prices for some companies are up over 300% since the “downturn” began. So what gives? Partly it’s just a story of careful financial management, aided by big share buy-backs and the Fed’s low interest-rate policies. But there are other, more subtle factors at work such as the high concentration of the sector, the rigorous management of multi-decade franchises, recent inroads in foreign markets, targeted application of political skills and the use of new technologies in refining production processes. I have written a commentary for Forbes here.
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