How The U.K.'s Exit From The EU Might Affect Aerospace, Defense Stocks

British and European-based banks saw their stocks collapse immediately following the "leave" side emerging victorious in the Brexit vote. The question many investors are still asking is what effect the voting outcome will have on other sectors.

Analysts at Barclays took a deep dive into the aerospace and defense sector and how it will be impacted by the Brexit voting outcome.

Barclays' lead U.S. aerospace and defense analyst Carter Copeland commented in a note on Monday that the sentiment between the aerospace and defense subgroups are "wide" and "seems likely to grow wider" in the near term. The analyst added that while a major drop in the British pound could provide "attractive transactional FX tailwinds" in the European aerospace sector, it will be partially offset by the "perceived risks of lower travel demand."

Related Link: Post-Brexit Analysis Shows Many ETFs Did Their Jobs

"Clearly, US peers only get the negative, and as a result, enter Q2 earnings with a growing anti-cyclical-exposure mindset dominating investor sentiment," Copeland argued in his note.

A Few Names

Copeland further suggested that Boeing Co BA, General Dynamics Corporation GD, Rockwell Collins, Inc. COL and Textron Inc. TXT are now "mostly out of favor." On the other hand, U.S. defense names will remain "somewhat insulated" from any short-term macro fears and remain a "safe haven."

The analyst named L-3 Communications Holdings, Inc. LLL, Raytheon Company RTN and Huntington Ingalls Industries Inc HII as three names with the "most positive" sentiment that are also "relatively discounted" to its peers.

Finally, Copeland stated that the sector faces a "pretty negative setup" and companies that issue earnings beats "may not get rewarded" while companies that present earnings that fall short of expectations will "simply get sold harder."