Wrapping up Q3 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 Q3. As a group, revenues beat analysts’ consensus estimates by 2.2% while next quarter’s revenue guidance was 2.7% below.
Thankfully, share prices of the companies have been resilient as they are up 6.3% 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 10% year on year. This print was in line with analysts’ expectations, and overall, it was a strong quarter for the company with an impressive beat of analysts’ backlog sales estimates and a decent beat of analysts’ operating margin estimates.
"KBR's exceptional team has once again exceeded expectations with outstanding third-quarter results," stated Stuart Bradie, KBR's President and CEO.
Interestingly, the stock is up 1.6% since reporting and currently trades at $71.51.
Is now the time to buy KBR? Access our full analysis of the earnings results here, it’s free.
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 earnings estimates.
Mercury Systems delivered the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 27.4% since reporting. It currently trades at $43.64.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
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, falling short of analysts’ expectations by 4%. It was a disappointing quarter as it posted a miss of analysts’ EBITDA estimates.
Huntington Ingalls delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 18.4% since the results and currently trades at $204.60.
Read our full analysis of Huntington Ingalls’s results here.
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 result topped analysts’ expectations by 3%. It was a stunning quarter as it also recorded an impressive beat of analysts’ backlog sales and earnings estimates.
The stock is up 19.5% since reporting and currently trades at $202.88.
Read our full, actionable report on Leidos here, it’s free.
Kratos (NASDAQ:KTOS)
Established with a commitment to supporting national security, Kratos (NASDAQ:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Kratos reported revenues of $275.9 million, flat year on year. This number met analysts’ expectations. Aside from that, it was a mixed quarter as it also logged an impressive beat of analysts’ earnings estimates but underwhelming EBITDA guidance for the next quarter.
The stock is up 12.3% since reporting and currently trades at $26.89.
Read our full, actionable report on Kratos here, it’s free.
Market Update
As expected, the Federal Reserve cut its policy rate by 25bps (a quarter of a percent) in November 2024 after Donald Trump triumphed in the US Presidential election. This marks the central bank's second easing of monetary policy after a large 50bps rate cut two months earlier. Going forward, the markets will debate whether these rate cuts (and more potential ones in 2025) are perfect timing to support the economy or a bit too late for a macro that has already cooled too much. Adding to the degree of difficulty is a new Republican administration that could make large changes to corporate taxes and prior efforts such as the Inflation Reduction Act.
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