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 13 defense contractors stocks we track reported a strong Q2. As a group, revenues beat analysts’ consensus estimates by 3.4% while next quarter’s revenue guidance was 0.6% below.
Thankfully, share prices of the companies have been resilient as they are up 6.6% on average since the latest earnings results.
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 $1.95 billion, up 5.2% year on year. This print fell short of analysts’ expectations by 6.8%. Overall, it was a softer quarter for the company with full-year revenue guidance missing analysts’ expectations.
KBR delivered the weakest performance against analyst estimates and weakest full-year guidance update of the whole group. Interestingly, the stock is up 8.9% since reporting and currently trades at $49.60.
Is now the time to buy KBR? Access our full analysis of the earnings results here, it’s free.
Best Q2: 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 $273.1 million, up 9.9% year on year, outperforming analysts’ expectations by 11.9%. The business had an incredible quarter with a solid beat of analysts’ organic revenue estimates and a beat of analysts’ EPS estimates.
The market seems happy with the results as the stock is up 27.5% since reporting. It currently trades at $68.50.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
Weakest Q2: Lockheed Martin (NYSE: LMT)
Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE: LMT) specializes in defense, space, homeland security, and information technology products.
Lockheed Martin reported revenues of $18.16 billion, flat year on year, falling short of analysts’ expectations by 2.3%. It was a softer quarter as it posted full-year EPS guidance missing analysts’ expectations.
As expected, the stock is down 4.9% since the results and currently trades at $438.83.
Read our full analysis of Lockheed Martin’s results here.
BWX (NYSE: BWXT)
Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE: BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.
BWX reported revenues of $764 million, up 12.1% year on year. This print topped analysts’ expectations by 7.2%. It was a stunning quarter as it also put up a beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA estimates.
BWX scored the highest full-year guidance raise among its peers. The stock is up 13.3% since reporting and currently trades at $175.
Read our full, actionable report on BWX here, it’s free.
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 $10.35 billion, up 1.3% year on year. This result beat analysts’ expectations by 3%. Overall, it was an exceptional quarter as it also recorded an impressive beat of analysts’ EBITDA estimates and a solid beat of analysts’ adjusted operating income estimates.
The stock is up 13.4% since reporting and currently trades at $583.97.
Read our full, actionable report on Northrop Grumman here, it’s free.
Market Update
In response to the Fed’s rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed’s 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.
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