WASHINGTON, D.C. – To find out what’s going on in Washington, sometimes the best place to turn is Wall Street. That’s particularly true when it comes to the defense business and the research analysts who track it.

Given the size of the military-industrial complex, there’s no shortage of analysts focused on aerospace and defense companies. By Thomson Financial’s count, for example, 22 analysts cover Lockheed Martin.

One way to cut through the clutter here is our third annual analyst rankings, published this week on Forbes.com. Conducted by our partners at StarMine, a research organization that evaluates analyst performance, the survey identifies Wall Street’s best in two categories: stock picking and accuracy in earnings estimates.

Full story at Forbes.com

With U.S. military spending now reaching half a trillion dollars per year, investors have shown plenty of appetite for defense stocks. Over the last 12 months, shares of aerospace and defense companies in the S&P 500 have outpaced the broader index by 14 percentage points.

If you’re looking to invest in this sector, research from brokerage house analysts may be a good place to turn for ideas. But which analysts? A starting point: the six identified as the tops for aerospace and defense in our annual Forbes.com/StarMine survey.

Compiled by StarMine and published this week by Forbes in print and online, the rankings name brokerage analysts who had the best track records during calendar 2004 in two areas: the accuracy of their earnings estimates and the timeliness of their recommendations on whether to buy, sell or hold.

Full story at Forbes.com

Since Northrop Grumman’s $7.8 billion bid for TRW last July, speculation is simmering about more dealmaking in the defense industry. While big acquisition candidates such as Raytheon and Harris receive much attention, investors may also want to keep an eye on possible targets further down in rank.

Integrated Defense Technologies is one such company. The $284 million (market value) firm sells electronic combat, power and surveillance systems to all the military branches as well as to government agencies, prime defense contractors and foreign governments. An example of its product offerings: coastal radar systems that detect small boats and low-flying aircraft in severe weather.

Huntsville, Ala.-based Integrated Defense held a successful initial public offering in March, but it’s had a rough ride lately. Last month, a warning that quarterly earnings per share would fall 4 cents short of the consensus estimate spooked investors. Shares fell to a low of $10, less than half the offering price of $22. The stock has recovered somewhat to $14.

At its current price, Integrated Defense has an enterprise value of $347 million. Enterprise value–a company’s common market value plus its debt and minus its cash–gives a rough idea of the minimum price a company would have to pay to acquire another firm outright.

Dividing the enterprise value for Integrated Defense by its latest 12-month operating earnings (here defined as earnings before interest, taxes, depreciation and amortization) produces an enterprise multiple of 6.1. That’s cheap relative to the 7.7 average multiple for the defense industry as a whole.

So the price may be right here, but is Integrated Defense primed for a sale? Adam Friedman, co-portfolio manager of the $740 million (assets) Armada Small Cap Value Fund, thinks so. With the firm’s shares depressed and Wall Street down on the stock, he suspects a deal might provide a more lucrative exit for the company’s venture investors.

As for possible acquirers, Friedman sees a good fit with General Dynamics. “They could use more pizzazz in their portfolio,” he says.

Full story at Forbes.com