Winners And Losers Of Q3: Parsons (NYSE:PSN) Vs The Rest Of The Defense Contractors Stocks

January 15, 2025 at 04:03 AM EST

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The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Parsons (NYSE: PSN) and the rest of the defense contractors stocks fared in Q3.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

The 15 defense contractors stocks we track reported a satisfactory Q3. As a group, revenues beat analysts’ consensus estimates by 2.3% while next quarter’s revenue guidance was 2.7% below.

While some defense contractors stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 4.9% since the latest earnings results.

Parsons (NYSE: PSN)

Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.

Parsons reported revenues of $1.81 billion, up 27.6% year on year. This print exceeded analysts’ expectations by 10.6%. Overall, it was an exceptional quarter for the company with an impressive beat of analysts’ EBITDA estimates.

CEO Commentary“We delivered record third quarter results for total revenue, organic revenue growth, net income, adjusted EBITDA, operating cash flow, and contract awards. We also achieved over 20% organic growth for the sixth consecutive quarter, while efficiently managing the business as bottom line growth continues to outpace our strong top line growth,” said Carey Smith, chair, president, and chief executive officer.

Parsons scored the highest full-year guidance raise of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 10.1% since reporting and currently trades at $94.47.

We think Parsons is a good business, but is it a buy today? Read our full report here, it’s free.

Best Q3: Mercury Systems (NASDAQ: MRCY)

Founded in 1981, Mercury Systems (NASDAQ: MRCY) specializes in providing processing subsystems and components for primarily defense applications.

Mercury Systems reported revenues of $204.4 million, up 13% year on year, outperforming analysts’ expectations by 12.5%. The business had an incredible quarter with a solid beat of analysts’ organic revenue estimates and an impressive beat of analysts’ EPS estimates.

Mercury Systems pulled off the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 25.6% since reporting. It currently trades at $43.01.

Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.

Weakest Q3: Huntington Ingalls (NYSE: HII)

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.

Huntington Ingalls reported revenues of $2.75 billion, down 2.4% year on year, falling short of analysts’ expectations by 4%. It was a disappointing quarter as it posted a significant miss of analysts’ adjusted operating income estimates.

Huntington Ingalls delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 21% since the results and currently trades at $198.18.

Read our full analysis of Huntington Ingalls’s results here.

Leidos (NYSE: LDOS)

Formed through the split of IT services company SAIC, Leidos (NYSE: LDOS) offers technology and engineering solutions such as military training systems for the defense, civil, and health markets.

Leidos reported revenues of $4.19 billion, up 6.9% year on year. This number surpassed analysts’ expectations by 3.1%. It was a stunning quarter as it also produced an impressive beat of analysts’ backlog estimates and a solid beat of analysts’ EPS estimates.

The stock is down 9.9% since reporting and currently trades at $152.99.

Read our full, actionable report on Leidos here, it’s free.

CACI (NYSE: CACI)

Founded to commercialize SIMSCRIPT, CACI International (NYSE: CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.

CACI reported revenues of $2.06 billion, up 11.2% year on year. This print topped analysts’ expectations by 7%. Overall, it was an exceptional quarter as it also logged an impressive beat of analysts’ backlog and EBITDA estimates.

The stock is down 14.9% since reporting and currently trades at $446.

Read our full, actionable report on CACI here, it’s free.

Market Update

Thanks to the Fed's series of rate hikes in 2022 and 2023, inflation has cooled significantly from its post-pandemic highs, drawing closer to the 2% goal. This disinflation has occurred without severely impacting economic growth, suggesting the success of a soft landing. The stock market has thrived in 2024, spurred by recent rate cuts (0.5% in September and 0.25% each in November and December), and a notable surge followed Donald Trump's presidential election win in November, propelling indices to historic highs. Nonetheless, the outlook for 2025 remains clouded by the pace and magnitude of future rate cuts as well as potential changes in trade policy and corporate taxes once the Trump administration takes over. The path forward is marked by uncertainty.

Want to invest in winners with rock-solid fundamentals? Check out our Top 5 Quality Compounder Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.

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