By Bill Edson - February 26, 2013 | Tickers: LMT, NOC, RTN, BA | 0 Comments

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The United States overspends on military projects, and as the national debt and sequestration move to the forefront of political debate, this oversized military spending is vulnerable. This is a bad thing for the aerospace/defense industry.

That being said, are there any stocks in this group that are cheap enough to warrant embracing these risks?

Industry challenges

Lockheed Martin (NYSE: LMT)expects a record profit in 2013, even though the company and other suppliers to the Pentagon could witness a decline in spending needed to reduce the U.S. deficit. The company expects to earn a profit of $9.10 per share by 2013; this would be its highest ever. The company projects earnings for a full-year profit in 2013 of $8.80 to $9.10 per share, more than the $8.28 per share average estimate of 22 analysts compiled by Bloomberg. Howard Rubel, an analyst of Jefferies Group, said that the companys performance during the fourth quarter of 2012 displayed a broad-based demand for its offerings. The companys growth in backlog was inspiring, representing a 2% increase to $82.3 billion by 2012.

Two other defense contractors,Raytheon (NYSE: RTN)andGeneral Dynamics, forecasted their 2013 results below analyst predictions. Reduction in the U.S. defense spending of $45 billion through September is expected to be implemented unless President Obama and Congress can agree by March to find an alternative method to reduce the federal deficit.

According Marillyn Hewson, President and Chief Executive Officer of Lockheed Martin, As we look at our go-forward plan for this year, we have a very strong portfolio and a solid plan in place. And even as we look at sequestration and potential budget reductions, were not looking at planned job reductions. The companys fate depends upon its biggest program, the F-35 jet fighter, which is also the Pentagons costliest weapon system, with a project development cost of $395.7 billion. During the fourth quarter of 2012, the companys earnings from continuing operations were $569 million, or $1.73 per share, as compared to $698 million, or $2.14 per share, during the fourth quarter of 2011. Meanwhile the average estimates of 21 analysts compiled by the Bloomberg was $1.82 per share profit.

The company is also protected against threat of budget cuts thanks to the Pentagons commitment to the F-35. In January, the company entered into a contract with the Pentagon for its fifth lot of jets, obligating funds and confirming continuous production in spite of the automatic cuts that could take place in March. The company expects to bring to close contracts with the Pentagon for two more lots of the planes by mid-2013 and to commence work on another batch that would turn out jets for Japan and Israel. In 2013, it plans to provide different customers with a total of 36 F-35 jets, or 20% more planes as compared to 2012.

Lockheed and Raytheons profits for 2013 are expected to increase due to tax credits the companies could claim for research and development as per the tax contract signed into law by Obama in February 2013. The law that would extend the tax credit is expected to add 23 cents per share to Lockheeds earnings in 2013 and about 15 cents per share to Raytheons earnings.

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Aerospace and Defense Stocks: Worth The Risk?