As the craze of earnings season draws to a close, here’s a look back at some of the most exciting (and some less so) results from Q1. Today, we are looking at defense contractors stocks, starting with Mercury Systems (NASDAQ: MRCY).
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 14 defense contractors stocks we track reported a strong Q1. As a group, revenues beat analysts’ consensus estimates by 2.5% while next quarter’s revenue guidance was in line.
Luckily, defense contractors stocks have performed well with share prices up 17.1% on average since the latest earnings results.
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 $211.4 million, up 1.5% year on year. This print exceeded analysts’ expectations by 4.6%. Overall, it was a strong quarter for the company with a solid beat of analysts’ organic revenue and EBITDA estimates.
“We delivered solid results in the third quarter of fiscal 2025 that were once again in line with or ahead of our expectations, reinforcing the confidence we have in our strategic positioning and expectations to deliver predictable organic growth with expanding margins and robust free cash flow,” said Bill Ballhaus, Mercury’s Chairman and CEO.
Interestingly, the stock is up 5.1% since reporting and currently trades at $52.99.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
Best Q1: 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 $275.1 million, up 39.6% year on year, outperforming analysts’ expectations by 12.9%. The business had an exceptional quarter with a solid beat of analysts’ EBITDA estimates and full-year EBITDA guidance exceeding analysts’ expectations.
AeroVironment achieved the biggest analyst estimates beat, fastest revenue growth, and highest full-year guidance raise among its peers. The market seems happy with the results as the stock is up 46.5% since reporting. It currently trades at $280.10.
Is now the time to buy AeroVironment? 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.
Northrop Grumman delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 3% since the results and currently trades at $515.
Read our full analysis of Northrop Grumman’s results here.
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 surpassed analysts’ expectations by 3.6%. It was a very strong quarter as it also recorded an impressive beat of analysts’ backlog estimates and an impressive beat of analysts’ EBITDA estimates.
The stock is up 9% since reporting and currently trades at $161.09.
Read our full, actionable report on Leidos 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 $2.06 billion, up 13% year on year. This result missed analysts’ expectations by 1.4%. Aside from that, it was a strong quarter as it put up a solid beat of analysts’ EBITDA estimates.
The stock is down 8.7% since reporting and currently trades at $47.07.
Read our full, actionable report on KBR 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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