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 Q2.
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 very strong Q2. As a group, revenues beat analysts’ consensus estimates by 4.9% while next quarter’s revenue guidance was 6.7% below.
Valuation multiples for many growth stocks have not yet reverted to their early 2021 highs, but the market was optimistic at the end of 2023 due to cooling inflation. This year has been a different story as mixed inflation signals have led to market volatility. Thankfully, defense contractors stocks have been resilient with share prices up 8.5% on average 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 $1.67 billion, up 23.1% year on year. This print exceeded analysts’ expectations by 8.2%. It was a decent quarter for the company with revenue and EPS exceeding expectations.
CEO Commentary “We are very pleased with our second quarter results and what the entire Parsons’ team continues to accomplish. Over the last three years, we have transformed the company into a high-value solutions provider that differentiates by leveraging software and cutting-edge technology,” said Carey Smith, chair, president, and chief executive officer.
Parsons achieved the fastest revenue growth and highest full-year guidance raise of the whole group. Unsurprisingly, the stock is up 23.5% since reporting and currently trades at $95.34.
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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 $248.6 million, down 1.8% year on year, outperforming analysts’ expectations by 7.8%. It was an incredible quarter for the company with an impressive beat of analysts’ organic revenue and earnings estimates.
The market seems happy with the results as the stock is up 12.6% since reporting. It currently trades at $38.30.
Weakest Q2: KBR (NYSE:KBR) Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
KBR reported revenues of $1.86 billion, up 5.8% year on year, falling short of analysts’ expectations by 1.1%. It was a slower quarter for the company with a miss of analysts’ backlog sales estimates and full-year revenue guidance missing analysts’ expectations.
KBR posted the weakest performance against analyst estimates in the group. As expected, the stock is down 1% since the results and currently trades at $67.91.
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 $753 million, up 19.9% year on year, surpassing analysts’ expectations by 10.7%. Overall, it was an incredible quarter for the company with an impressive beat of analysts’ earnings estimates.
Leonardo DRS delivered the biggest analyst estimates beat among its peers. The stock is down 2.4% since reporting and currently trades at $27.50.
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 $2.04 billion, up 19.7% year on year, surpassing analysts’ expectations by 5.5%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ backlog sales estimates.
The stock is up 5.6% since reporting and currently trades at $471.02.
This content was originally published on Stock Story
