As the Q2 earnings season wraps, let’s dig into this quarter’s best and worst performers in the defense contractors industry, including CACI (NYSE:CACI) 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 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 6.3% on average since the latest earnings results.
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. This print exceeded analysts’ expectations by 5.5%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ backlog sales estimates and a decent beat of analysts’ earnings estimates.
“CACI’s exceptional fiscal year 2024 financial performance is the result of the relentless execution of our strategy. Our results were strong across the board, including achieving organic growth in the mid-teens, and delivering on our margin and cash flow expectations,” said John Mengucci, CACI President and Chief Executive Officer.
Interestingly, the stock is up 3.5% since reporting and currently trades at $461.80.
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Best Q2: 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, outperforming analysts’ expectations by 10.7%. It was an incredible quarter for the company with an impressive beat of analysts’ earnings estimates.
Leonardo DRS achieved the biggest analyst estimates beat among its peers. Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 1.6% since reporting. It currently trades at $27.75.
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, exceeding analysts’ expectations by 7.8%. It was an incredible quarter for the company with an impressive beat of analysts’ organic revenue and earnings estimates.
Mercury Systems had the slowest revenue growth in the group. Interestingly, the stock is up 17.6% since the results and currently trades at $39.99.
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 $2.98 billion, up 6.8% year on year, surpassing analysts’ expectations by 4.7%. More broadly, it was an incredible quarter for the company with an impressive beat of analysts’ earnings estimates.
The stock is down 4.7% since reporting and currently trades at $266.63.
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 $19.72 billion, up 7.7% year on year, surpassing analysts’ expectations by 2.3%. Revenue aside, it was a very strong quarter for the company with an impressive beat of analysts’ organic revenue estimates and a decent beat of analysts’ earnings estimates.
The stock is up 12.4% since reporting and currently trades at $117.86.
This content was originally published on Stock Story
