Let’s dig into the relative performance of Huntington Ingalls (NYSE:HII) and its peers as we unravel the now-completed Q3 defense contractors earnings season.
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 15 defense contractors stocks we track reported a satisfactory Q3. As a group, revenues beat analysts’ consensus estimates by 2.3% while next quarter’s revenue guidance was 2.7% below.
Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 8.9% since the latest earnings results.
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. This print fell short of analysts’ expectations by 4%. Overall, it was a disappointing quarter for the company with a significant miss of analysts’ adjusted operating income estimates.
"Two issues have impacted our results and guidance for the year," said Chris Kastner, HII’s president and CEO.
Huntington Ingalls delivered the weakest performance against analyst estimates and slowest revenue growth of the whole group. Unsurprisingly, the stock is down 24.4% since reporting and currently trades at $189.66.
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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 an impressive beat of analysts’ organic revenue and 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 28.5% since reporting. It currently trades at $44.
General Dynamics (NYSE:GD)
Creator of the famous M1 Abrahms tank, General Dynamics (NYSE:GD) develops aerospace, marine systems, combat systems, and information technology products.General Dynamics reported revenues of $11.67 billion, up 10.4% year on year, falling short of analysts’ expectations by 0.8%. It was a softer quarter as it posted a miss of analysts’ EBITDA estimates.
As expected, the stock is down 14.6% since the results and currently trades at $261.47.
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 number surpassed analysts’ expectations by 3.1%. Overall, it was a stunning quarter as it also put up a solid beat of analysts’ backlog and EPS estimates.
The stock is down 14.2% since reporting and currently trades at $145.69.
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 print beat analysts’ expectations by 7%. It was an exceptional quarter as it also logged a solid beat of analysts’ backlog and EBITDA estimates.
The stock is down 21% since reporting and currently trades at $414.43.
Market Update
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This content was originally published on Stock Story
