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Defense Contractors Stocks Q3 Teardown: ICF (NASDAQ:ICFI) Vs The Rest
Max Juang
5 min read
Defense Contractors Stocks Q3 Teardown: ICF (NASDAQ:ICFI) Vs The Rest
Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at ICF (NASDAQ:ICFI) and the best and worst performers in the defense contractors industry.
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 6.9% since the latest earnings results.
ICF (NASDAQ:ICFI)
Originally founded as Inner City Fund, ICF International (NASDAQ:ICFI) delivers consulting and technology services in health, environment, and infrastructure.
ICF reported revenues of $517 million, up 3.1% year on year. This print fell short of analysts’ expectations by 2.1%. Overall, it was a mixed quarter for the company with full-year EPS guidance exceeding analysts’ expectations.
Commenting on the results, John Wasson, chair and chief executive officer, said, "This was another quarter of strong performance for ICF. Total revenues increased 3% year-on-year. Revenues from continuing operations increased 6% from last year's levels, which includes a considerable impact from lower pass-throughs.
ICF Total Revenue
Unsurprisingly, the stock is down 25.1% since reporting and currently trades at $125.94.
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 estimates and a solid beat of analysts’ EPS estimates.
Mercury Systems Total Revenue
Mercury Systems scored the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 14.8% since reporting. It currently trades at $39.33.
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 significant miss of analysts’ adjusted operating income estimates.
Huntington Ingalls delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 22.2% since the results and currently trades at $195.08.
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 surpassed analysts’ expectations by 3%. Overall, it was a stunning quarter as it also logged a solid beat of analysts’ backlog andEPS estimates.
The stock is down 10.5% since reporting and currently trades at $151.90.
Delivering aerospace technology during the Cold War-era, Parsons (NYSE:PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Parsons reported revenues of $1.81 billion, up 27.6% year on year. This number topped analysts’ expectations by 10.6%. It was an exceptional quarter as it also recorded a solid beat of analysts’ EBITDA estimates.
Parsons pulled off the highest full-year guidance raise among its peers. The stock is down 6.8% since reporting and currently trades at $97.92.
The Fed’s interest rate hikes throughout 2022 and 2023 have successfully cooled post-pandemic inflation, bringing it closer to the 2% target. Inflationary pressures have eased without tipping the economy into a recession, suggesting a soft landing. This stability, paired with recent rate cuts (0.5% in September 2024 and 0.25% in November 2024), has fueled a strong year for the stock market in 2024. The markets surged further after Donald Trump’s presidential victory in November, with major indices reaching record highs in the days following the election. Still, questions remain about the direction of economic policy, as potential tariffs and corporate tax changes add uncertainty heading into 2025.
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