Wrapping up Q2 earnings, we look at the numbers and key takeaways for the defense contractors stocks, including KBR (NYSE:KBR) 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.
Stocks--especially those trading at higher multiples--had a strong end of 2023, but this year has seen periods of volatility. Mixed signals about inflation have led to uncertainty around rate cuts. Thankfully, defense contractors stocks have been resilient with share prices up 6.6% on average since the latest earnings results.
Weakest Q2: KBR (NYSE:KBR) Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
KBR reported revenues of $1.86 billion, up 5.8% year on year. This print fell short of analysts’ expectations by 1.1%. Overall, it was a weak quarter for the company with a miss of analysts’ backlog sales estimates and full-year revenue guidance missing analysts’ expectations.
"I am pleased to announce another fantastic quarter in which KBR continues to drive operational excellence and deliver outstanding results for customers. The focus, agility and commitment of our people have the business performing well across our key metrics. We expect this to continue for the rest of the year and thus are raising profit and cash flow guidance," said Stuart Bradie, KBR President and CEO.
KBR delivered the weakest performance against analyst estimates of the whole group. Unsurprisingly, the stock is down 3.8% since reporting and currently trades at $65.99.
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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.
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 $11.98 billion, up 18% year on year, exceeding analysts’ expectations by 4.1%. It was a weaker quarter for the company with a miss of analysts’ backlog sales estimates and a miss of analysts’ earnings estimates.
The stock is flat since the results and currently trades at $296.
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 $300.1 million, up 16.8% year on year, surpassing analysts’ expectations by 8.7%. Zooming out, it was a solid quarter for the company with an impressive beat of analysts’ organic revenue and earnings estimates.
Kratos had the weakest full-year guidance update among its peers. The stock is flat since reporting and currently trades at $20.23.
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%. Zooming out, 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.
This content was originally published on Stock Story
