TDY

Zacks recommends three aerospace-defense equipment stocks with strong growth potential. HEICO Corp. (Rank #1) benefits from sustained demand for aftermarket parts and recent acquisitions, with 33.6% upside potential.

ATI Inc. (Rank #1) is driven by strong aerospace and defense demand with record backlog and 29.2% upside. Teledyne Technologies (Rank #2) is supported by rising global defense spending and a $5 billion backlog with 25.2% upside potential.

Teledyne raised its full-year 2026 sales guidance for the third consecutive quarter, driven by a record funded backlog of $5.3 billion. Strong demand for infrared detectors in defense space and unmanned systems accelerated performance, while the company's disciplined acquisition strategy continues to improve margins, exemplified by reducing FLIR's valuation multiple from 16.7x to 13.7x EBITDA in four years.

Axon Enterprise reported strong Q2 2026 results with revenues surging 35.3% to $904.4 million and adjusted EBITDA margin expanding 110 basis points to 26.8%, despite escalating operating expenses. The company targets a 28% adjusted EBITDA margin by 2028 with $6 billion in annual revenues, driven by robust demand for products like TASER 10 and Axon Body 4, plus growing international expansion.

Kratos Defense secured over $100 million in space and cyber contracts and achieved a key milestone with the GEK800 engine, positioning itself for growth in defense markets. However, the company faces headwinds from supply-chain disruptions, higher costs, and a lower return on equity (4.54%) compared to industry average (15.44%). Analysts recommend new investors wait for a better entry point, while current holders should maintain positions given strong earnings growth.

The global UGV market is projected to grow from $8.3 billion in 2026 to $13.1 billion by 2031, driven by military modernization, defense spending, and civilian adoption across agriculture, mining, and infrastructure sectors. AI-powered autonomous systems and advanced sensor technologies are key growth enablers, though battery life limitations remain a challenge. North America leads the market, supported by strong defense ecosystems and technology infrastructure.