Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at Northrop Grumman (NYSE:NOC) and the best and worst performers in the defense contractors industry.
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 Q3. As a group, revenues beat analysts’ consensus estimates by 2.2% 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 4.5% since the latest earnings results.
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 $10.00 billion, up 2.3% year on year. This print fell short of analysts’ expectations by 1.7%, but it was still a satisfactory quarter for the company with a solid beat of analysts’ adjusted operating income estimates but a miss of analysts’ organic revenue estimates.
Unsurprisingly, the stock is down 6% since reporting and currently trades at $485.21.
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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 delivered the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 14.3% since reporting. It currently trades at $39.14.
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 23.5% since the results and currently trades at $191.87.
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 result surpassed analysts’ expectations by 3%. It was a stunning quarter as it also recorded an impressive beat of analysts’ backlog estimates and a solid beat of analysts’ EPS estimates.
The stock is down 3.3% since reporting and currently trades at $164.10.
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 result topped analysts’ expectations by 7%. Overall, it was an exceptional quarter as it also logged a solid beat of analysts’ backlog estimates and an impressive beat of analysts’ EBITDA estimates.
The stock is down 13.4% since reporting and currently trades at $453.90.
Market Update
In response to the Fed's rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed's 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.Want to invest in winners with rock-solid fundamentals? Check out our and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.
This content was originally published on Stock Story
