Looking back on defense contractors stocks' Q1 earnings, we examine this quarter's best and worst performers, including Huntington Ingalls (NYSE:HII) 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 Q1; on average, revenues beat analyst consensus estimates by 3.2%. 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 while some of the defense contractors stocks have fared somewhat better than others, they collectively declined, with share prices falling 0.8% on average since the previous earnings results.
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. It was a mixed quarter for the company, with a decent beat of analysts' earnings estimates but a miss of analysts' operating margin estimates.
“The first quarter was a good start to the year,” said Chris Kastner, HII’s president and CEO.
The stock is down 11% since the results and currently trades at $246.33.
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Best Q1: 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 $10.13 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 and operating margin estimates.
The stock is down 8.3% since the results and currently trades at $434.99.
Weakest Q1: Mercury Systems (NASDAQ:MRCY) Listed on the NASDAQ in 1998, Mercury Systems (NASDAQGS:MRCY) specializes in providing processing subsystems and components for 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' operating margin and earnings estimates.
Mercury Systems had the weakest performance against analyst estimates and slowest revenue growth in the group. The stock is down 8% since the results and currently trades at $26.76.
Kratos (NASDAQ:KTOS) Established with a commitment to supporting national security, Kratos (NASDAQGS:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Kratos reported revenues of $277.2 million, up 19.6% year on year, surpassing analysts' expectations by 10.7%. It was a very good quarter for the company, with an impressive beat of analysts' organic revenue estimates.
Kratos scored the biggest analyst estimates beat among its peers. The stock is up 6.6% since the results and currently trades at $20.02.
General Dynamics (NYSE:NYSE:GD) Creator of the famous M1 Abrahms tank, General Dynamics (NYSE:GS) develops aerospace, marine systems, combat systems, and information technology products.
General Dynamics reported revenues of $10.73 billion, up 8.6% year on year, surpassing analysts' expectations by 4.2%. It was a mixed quarter for the company, with a miss of analysts' backlog sales and earnings estimates.
The stock is down 0.6% since the results and currently trades at $291.
