As the Q2 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the defense contractors industry, including Lockheed Martin (NYSE: LMT) 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 Q2. As a group, revenues beat analysts’ consensus estimates by 3.4% while next quarter’s revenue guidance was in line.
Thankfully, share prices of the companies have been resilient as they are up 8.2% on average since the latest earnings results.
Weakest Q2: Lockheed Martin (NYSE: LMT)
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 $18.16 billion, flat year on year. This print fell short of analysts’ expectations by 2.3%. Overall, it was a softer quarter for the company with full-year EPS guidance missing analysts’ expectations and a significant miss of analysts’ adjusted operating income estimates.
"Over the course of the past few months, Lockheed Martin systems and platforms once again proved highly effective in combat operations and in deterring further aggression. Our F-35s, F-22s, PAC-3, THAAD, Aegis and many others, crewed by the soldiers, airmen, sailors, marines and guardians of the U.S. and its Allies, and supported by our own dedicated teammates, performed extremely well in the most crucial and challenging situations," said Lockheed Martin Chairman, President and CEO Jim Taiclet.
Unsurprisingly, the stock is down 1.3% since reporting and currently trades at $455.25.
Read our full report on Lockheed Martin here, it’s free.
Best Q2: 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 $273.1 million, up 9.9% year on year, outperforming analysts’ expectations by 11.9%. The business had an incredible quarter with an impressive beat of analysts’ organic revenue estimates and a beat of analysts’ EPS estimates.
The market seems happy with the results as the stock is up 28.4% since reporting. It currently trades at $68.98.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
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 5.2% year on year, falling short of analysts’ expectations by 6.8%. It was a softer quarter as it posted full-year revenue guidance missing analysts’ expectations significantly and a significant miss of analysts’ adjusted operating income estimates.
KBR delivered the weakest performance against analyst estimates and weakest full-year guidance update in the group. Interestingly, the stock is up 13.4% since the results and currently trades at $51.61.
Read our full analysis of KBR’s results here.
Parsons (NYSE: PSN)
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 $1.58 billion, down 5.2% year on year. This print came in 0.9% below analysts' expectations. Taking a step back, it was a mixed quarter as it also recorded a solid beat of analysts’ adjusted operating income estimates but a slight miss of analysts’ backlog estimates.
Parsons had the slowest revenue growth among its peers. The stock is up 4.3% since reporting and currently trades at $80.34.
Read our full, actionable report on Parsons here, it’s free.
RTX (NYSE: RTX)
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
RTX reported revenues of $21.58 billion, up 9% year on year. This result beat analysts’ expectations by 4.4%. Overall, it was an exceptional quarter as it also logged an impressive beat of analysts’ organic revenue estimates and a solid beat of analysts’ EBITDA estimates.
The stock is up 5.6% since reporting and currently trades at $160.24.
Read our full, actionable report on RTX here, it’s free.
Market Update
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), 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 for 2025.
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