The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Kratos (NASDAQ: KTOS) and the rest of the defense contractors stocks fared in Q1.
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 4.5% on average since the latest earnings results.
Kratos (NASDAQ: KTOS)
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 exceeded analysts’ expectations by 3.9%. Overall, it was a very strong quarter for the company with a solid beat of analysts’ organic revenue estimates and an impressive beat of analysts’ EPS estimates.
The stock is up 11.7% since reporting and currently trades at $40.30.
Is now the time to buy Kratos? Access our full analysis of the earnings results 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.
The market seems unhappy with the results as the stock is down 1.6% since reporting. It currently trades at $145.45.
Is now the time to buy Leidos? Access our full analysis of the earnings results here, it’s free.
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, falling short of analysts’ expectations by 4.7%. It was a disappointing quarter as it posted full-year EPS guidance missing analysts’ expectations and a significant miss of analysts’ adjusted operating income estimates.
Northrop Grumman delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 7.2% since the results and currently trades at $492.50.
Read our full analysis of Northrop Grumman’s results here.
CACI (NYSE: CACI)
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. This print surpassed analysts’ expectations by 1.5%. Overall, it was a very strong quarter as it also put up an impressive beat of analysts’ backlog and EBITDA estimates.
The stock is flat since reporting and currently trades at $425.21.
Read our full, actionable report on CACI 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 $20.31 billion, up 5.2% year on year. This number topped analysts’ expectations by 1.7%. It was a strong quarter as it also produced an impressive beat of analysts’ EBITDA estimates.
The stock is up 10% since reporting and currently trades at $138.57.
Read our full, actionable report on RTX here, it’s free.
Market Update
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 thrived in 2024, spurred by recent rate cuts (0.5% in September and 0.25% in November), 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 potential trade policy changes and corporate tax discussions, which could impact business confidence and growth. The path forward holds both optimism and caution as new policies take shape.
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