Spotting Winners: AeroVironment (NASDAQ:AVAV) And Defense Contractors Stocks In Q3
As the Q3 earnings season wraps, let’s dig into this quarter’s best and worst performers in the defense contractors industry, including AeroVironment (NASDAQ:AVAV) 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 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 9.9% since the latest earnings results.
AeroVironment (NASDAQ:AVAV)
Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.
AeroVironment reported revenues of $188.5 million, up 4.2% year on year. This print exceeded analysts’ expectations by 3.9%. Despite the top-line beat, it was still a softer quarter for the company with a significant miss of analysts’ adjusted operating income estimates.
“AeroVironment continues to deliver strong results, including record second-quarter revenue along with a healthy funded backlog that is 25% higher than the prior quarter,” said Wahid Nawabi, AeroVironment chairman, president and chief executive officer.
AeroVironment Total Revenue
AeroVironment delivered the weakest full-year guidance update of the whole group. Unsurprisingly, the stock is down 19.8% since reporting and currently trades at $158.
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 EPS estimates.
Mercury Systems Total Revenue
Mercury Systems delivered the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 23.8% since reporting. It currently trades at $42.40.
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 23.3% since the results and currently trades at $192.50.
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 $17.1 billion, up 1.3% year on year. This print came in 1.5% below analysts' expectations. Overall, it was a slower quarter as it also produced a significant miss of analysts’ EBITDA estimates and a slight miss of analysts’ organic revenue estimates.
The stock is down 21.6% since reporting and currently trades at $482.25.
Creator of the famous M1 Abrahms tank, General Dynamics (NYSE:GD) develops aerospace, marine systems, combat systems, and information technology products.
General Dynamics reported revenues of $11.67 billion, up 10.4% year on year. This print lagged analysts' expectations by 0.8%. It was a softer quarter as it also logged a miss of analysts’ EBITDA estimates.
The stock is down 14.7% since reporting and currently trades at $261.01.
Thanks to the Fed's series of rate hikes in 2022 and 2023, inflation has cooled significantly from its post-pandemic highs, drawing closer to the 2% goal. This disinflation has occurred without severely impacting economic growth, suggesting the success of a soft landing. The stock market has thrived in 2024, spurred by recent rate cuts (0.5% in September and 0.25% each in November and December), and a notable surge followed Donald Trump's presidential election win in November, propelling indices to historic highs. Nonetheless, the outlook for 2025 remains clouded by the pace and magnitude of future rate cuts as well as potential changes in trade policy and corporate taxes once the Trump administration takes over. The path forward is marked by uncertainty.
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