Wrapping up Q1 earnings, we look at the numbers and key takeaways for the defense contractors stocks, including RTX (NYSE:RTX) 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 13 defense contractors stocks we track reported a strong Q1; on average, revenues beat analyst consensus estimates by 3.5%. while next quarter's revenue guidance was 0.7% above consensus. 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. The start of 2024 has been a different story as mixed signals have led to market volatility, and defense contractors stocks have held roughly steady amidst all this, with share prices up 3.7% on average since the previous earnings results.
RTX (NYSE:RTX) Originally focused on refrigeration technology, Raytheon (NYSE:RTN) (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
RTX reported revenues of $19.31 billion, up 12.1% year on year, exceeding analysts' expectations by 4.9%. Overall, it was a stunning quarter for the company with an impressive beat of analysts' organic revenue estimates and a decent beat of analysts' earnings estimates.
"RTX saw strong momentum in the first quarter, delivering 12 percent organic sales* growth and winning over $25 billion in new orders across our businesses," said RTX President and Chief Operating Officer Chris Calio.
The stock is flat since reporting and currently trades at $101.72.
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Best Q1: Northrop Grumman (NYSE: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 $10.13 billion, up 8.9% year on year, outperforming analysts' expectations by 3.8%. It was a stunning quarter for the company with an impressive beat of analysts' organic revenue estimates and a decent beat of analysts' earnings estimates.
Although it had a great quarter compared its peers, the market seems unhappy with the results as the stock is down 9% since reporting. It currently trades at $431.92.
Weakest Q1: 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 $208.3 million, down 21% year on year, falling short of analysts' expectations by 2.9%. It was a weak quarter for the company with a miss of analysts' earnings and organic revenue estimates.
Mercury Systems posted the weakest performance against analyst estimates and slowest revenue growth in the group. Interestingly, the stock is up 11.4% since the results and currently trades at $32.41.
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 $2.81 billion, up 4.9% year on year, in line with analysts' expectations. Overall, it was a solid quarter for the company with a decent beat of analysts' earnings estimates.
The stock is down 7.6% since reporting and currently trades at $255.88.
ICF (NASDAQ:ICFI) Originally founded as Inner City Fund, ICF International (NASDAQ:ICFI) delivers consulting and technology services in health, environment, and infrastructure.
ICF reported revenues of $494.4 million, up 2.3% year on year, surpassing analysts' expectations by 1.3%. More broadly, it was a very strong quarter for the company with an impressive beat of analysts' earnings estimates.
The stock is down 3.8% since reporting and currently trades at $138.46.
This content was originally published on Stock Story
