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Earnings results often indicate what direction a company will take in the months ahead. With Q1 behind us, let’s have a look at Northrop Grumman (NYSE:NOC) 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 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.
Weakest Q1: 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 $9.47 billion, down 6.6% year on year. This print fell short of analysts’ expectations by 4.7%. Overall, it was a disappointing quarter for the company with full-year EPS guidance missing analysts’ expectations.
Northrop Grumman delivered the weakest performance against analyst estimates and slowest revenue growth of the whole group. The stock is down 9.9% since reporting and currently trades at $478.25.
Read our full report on Northrop Grumman here, it’s free.
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, outperforming analysts’ expectations by 3.6%. The business had a very strong quarter with an impressive beat of analysts’ backlog and EBITDA estimates.
However, the results were likely priced into the stock as it’s traded sideways since reporting. Shares currently sit at $147.50.
Is now the time to buy Leidos? Access our full analysis of the earnings results here, it’s free.
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.