Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at Huntington Ingalls (NYSE:HII) and the best and worst performers in the defense contractors industry.
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. On average, they are relatively unchanged since the latest earnings results.
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.
Huntington Ingalls reported revenues of $2.73 billion, down 2.5% year on year. This print fell short of analysts’ expectations by 2.1%. Overall, it was a mixed quarter for the company with an impressive beat of analysts’ EBITDA estimates.
“We are encouraged by the pace of our operational initiatives in 2025. We expect throughput to ramp as we move through the year and, coupled with our cost savings initiatives, we expect steady improvement in support of our operational and financial goals. We are also very supportive of the administration's commitment to expand our nation's shipbuilding capabilities and the maritime industrial base," said Chris Kastner, HII’s president and CEO.
Huntington Ingalls Total Revenue
The stock is down 1.3% since reporting and currently trades at $227.
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 a solid beat of analysts’ backlog and EBITDA estimates.
Leidos Total Revenue
The market seems happy with the results as the stock is up 5.9% since reporting. It currently trades at $156.49.
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 10.3% since the results and currently trades at $476.04.
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 result beat analysts’ expectations by 1.5%. It was a very strong quarter as it also produced 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 $462.04.
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ:DRS) is a provider of defense systems, electronics, and military support services.
Leonardo DRS reported revenues of $799 million, up 16.1% year on year. This number surpassed analysts’ expectations by 9.2%. Overall, it was a very strong quarter as it also put up an impressive beat of analysts’ adjusted operating income estimates and a solid beat of analysts’ EPS estimates.
Leonardo DRS scored the biggest analyst estimates beat and fastest revenue growth among its peers. The stock is up 9.8% since reporting and currently trades at $40.60.
As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.
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