As the Q2 earnings season wraps, let’s dig into this quarter’s best and worst performers in the defense contractors industry, including Leonardo DRS (NASDAQ: DRS) and its peers.
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 14 defense contractors stocks we track reported a strong Q2. As a group, revenues beat analysts’ consensus estimates by 3.3% while next quarter’s revenue guidance was in line.
Luckily, defense contractors stocks have performed well with share prices up 12.7% on average since the latest earnings results.
Leonardo DRS (NASDAQ: DRS)
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Leonardo DRS reported revenues of $829 million, up 10.1% year on year. This print was in line with analysts’ expectations, and overall, it was a strong quarter for the company with an impressive beat of analysts’ backlog estimates and full-year revenue guidance slightly topping analysts’ expectations.
“Leonardo DRS delivered another set of strong financial results marked by healthy bookings, solid organic revenue growth and continued profit and margin expansion in the second quarter. The need to deter and contest heightened global threats continues to bolster customer demand for our innovative, high-performance technologies. Amidst a more dynamic macro backdrop, we remain focused on disciplined execution and delivering differentiated capabilities to customers,” said Bill Lynn, Chairman and CEO of Leonardo DRS.
The stock is down 10% since reporting and currently trades at $43.38.
Is now the time to buy Leonardo DRS? Access our full analysis of the earnings results here, it’s free.
Best Q2: 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 $273.1 million, up 9.9% year on year, outperforming analysts’ expectations by 11.9%. The business had an incredible quarter with a solid beat of analysts’ organic revenue and EPS estimates.
The market seems happy with the results as the stock is up 43.2% since reporting. It currently trades at $76.91.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
Weakest Q2: Lockheed Martin (NYSE: LMT)
Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE: LMT) specializes in defense, space, homeland security, and information technology products.
Lockheed Martin reported revenues of $18.16 billion, flat year on year, falling short of analysts’ expectations by 2.3%. It was a softer quarter as it posted full-year EPS guidance missing analysts’ expectations and a significant miss of analysts’ adjusted operating income estimates.
Interestingly, the stock is up 4% since the results and currently trades at $480.
Read our full analysis of Lockheed Martin’s results here.
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 $3.08 billion, up 3.5% year on year. This print topped analysts’ expectations by 5.5%. It was a strong quarter as it also recorded a solid beat of analysts’ EBITDA and EPS estimates.
The stock is up 7.1% since reporting and currently trades at $276.97.
Read our full, actionable report on Huntington Ingalls here, it’s free.
Northrop Grumman (NYSE: NOC)
Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.
Northrop Grumman reported revenues of $10.35 billion, up 1.3% year on year. This number beat analysts’ expectations by 3%. Overall, it was an exceptional quarter as it also put up an impressive beat of analysts’ EBITDA estimates.
The stock is up 11.4% since reporting and currently trades at $573.90.
Read our full, actionable report on Northrop Grumman here, it’s free.
Market Update
As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.
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