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 Leidos (NYSE:LDOS) 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 13 defense contractors stocks we track reported a strong Q1. As a group, revenues beat analysts’ consensus estimates by 1.6% while next quarter’s revenue guidance was in line.
In light of this news, share prices of the companies have held steady as they are up 1.5% on average since the latest earnings results.
Best Q1: 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 $4.25 billion, up 6.8% year on year. This print exceeded analysts’ expectations by 3.6%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ backlog and EBITDA estimates.
"Our robust first quarter results build on the momentum from 2024, demonstrating the team's ability to execute in a dynamic environment that demands agility and innovation," said Leidos Chief Executive Officer Tom Bell.
Leidos Total Revenue
The market was likely pricing in the results, and the stock is flat since reporting. It currently trades at $147.50.
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 $2.17 billion, up 11.8% year on year, outperforming analysts’ expectations by 1.5%. The business had a very strong quarter with an impressive beat of analysts’ backlog and EBITDA estimates.
CACI Total Revenue
However, the results were likely priced into the stock as it’s traded sideways since reporting. Shares currently sit at $425.21.
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 $9.47 billion, down 6.6% year on year, falling short of analysts’ expectations by 4.7%. It was a disappointing quarter as it posted full-year EPS guidance missing analysts’ expectations.
Northrop Grumman delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 9.9% since the results and currently trades at $478.25.
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 $799 million, up 16.1% year on year. This number beat analysts’ expectations by 9.2%. It was a very strong quarter as it also produced a solid beat of analysts’ adjusted operating income estimates and an impressive beat of analysts’ EPS estimates.
Leonardo DRS delivered the biggest analyst estimates beat and fastest revenue growth among its peers. The stock is up 12.8% since reporting and currently trades at $41.68.
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 $302.6 million, up 9.2% year on year. This print topped analysts’ expectations by 3.9%. Overall, it was a very strong quarter as it also logged a solid beat of analysts’ organic revenue estimates and an impressive beat of analysts’ EPS estimates.
The stock is flat since reporting and currently trades at $36.41.
Thanks to the Fed’s rate hikes in 2022 and 2023, inflation has been on a steady path downward, easing back toward that 2% sweet spot. Fortunately (miraculously to some), all this tightening didn’t send the economy tumbling into a recession, so here we are, cautiously celebrating a soft landing. The cherry on top? Recent rate cuts (half a point in September 2024, a quarter in November) have propped up markets, especially after Trump’s November win lit a fire under major indices and sent them to all-time highs. However, there’s still plenty to ponder — tariffs, corporate tax cuts, and what 2025 might hold for the economy.
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