Don't Look Now, But the Navy's Laser Arms Race Just Got Hotter

Northrop Grumman sees a day when American Navy destroyers will pack laser cannons. IMAGE SOURCE: NORTHROP GRUMMAN.

Two years ago, the U.S. Navy tested its new Laser Weapon System -- a $40 million, 33 kilowatt prototype built by Kratos Defense & Security (KTOS 2.33%) -- off the coast of Iran.

Two months ago, Northrop Grumman (NOC 2.23%) won a Navy contract to build a new laser cannon that will make Kratos's weapon look like a pop-gun. With a $91 million development budget behind it, Northrop's Laser Weapon System Demonstrator will kick out 150 kilowatts of blazing firepower -- enough juice to fry a cruise missile from several miles away.

But don't look now -- those U.S. companies aren't the only ones developing serious laser cannons.

Einführung für die Laserkanone!
Over in Germany, leading defense conglomerate Rheinmetall just finished conducting sea trials  of a new laser cannon of its own. As described by Defense-Update.com, the German weapons system seems a bit of a hodgepodge -- comprising a 10-kilowatt high energy laser mounted atop a Mauser light naval gun. And the laser itself wasn't even actually fired at sea (although it has been tested against stationary targets on land).

While the Germans are years behind U.S. defense contractors in development of naval laser weapons, they're moving in the same general direction. And according to Defense-Update.com, the results of their sea trials confirmed the "feasibility of integration of Rheinmetall's HEL effector on MLG27" -- which Rheinmetall also produces.

So what else do we know about this weapon, and its maker?

Digging deeper
According to Rheinmetall,  in addition to its recent maritime test, it is the only European defense company to have successfully tested high energy lasers on at least three other weapons platforms -- a GTK Boxer wheeled armored vehicle, a modified M113 APC, and an 8x8 Tatra truck.

Rheinmetall has installed lasers of various power outputs upon multiple platforms. Image source: Rheinmetall.

Rheinmetall has proven its weapons' effectiveness against a range of targets, shooting down everything from incoming mortar shells to unmanned aerial vehicles in flight.

UAV spotted. Now you see it, now you don't. Image source: Rheinmetall.

To date, Rheinmetall has tested laser cannons of up to 30 kilowatts in energy output -- and may even have an 80-kilowatt weapon  under development. In other words, not only is this company not that far behind the U.S. contractors in laser weaponization, on land, it may actually be stealing a march on them.

What it means to investors
While it doesn't get a lot of press in the U.S., Rheinmetall (ETR: RHM) (RHM -1.25%)actually is a publicly traded company (though doesn't list an ADR on U.S. stock exchanges). And while small by comparison to the major U.S. defense contractors, it's far from insubstantial. According to data from S&P Global Market Intelligence, Rheinmetall boasts some impressive stats. Here's how its stock compares to rival U.S. laser maker Northrop Grumman, for example:

How do the two stocks stack up? A few general observations: Comparing their Price/Sales ratios, Rheinmetall's P/S of 0.5 makes it look like a much better bargain than Northrop Grumman's 1.5. Rheinmetall also has a somewhat faster growth outlook than its U.S. rival.

On the other hand, Northrop Grumman is by far the more efficient profit producer, squeezing more than twice as many profit-pennies out of each revenue dollar than Rheinmetall does. And with so much more profit to work with, Northrop Grumman also pays its shareholders much more generously,  boasting a dividend yield four times as rich as Rheinmetall's.

On balance, both stocks have much to recommend them. Rheinmetall looks like the better value play, and if you believe the company will find a way to expand its profit margins, could pay off nicely over time. Northrop Grumman, however, is paying off for dividend investors already -- today.

Is that a laser in your pocket, Rheinmetall, or are you just happy to see us? Image source: Rheinmetall.