The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how defense contractors stocks fared in Q3, starting with RTX (NYSE:RTX).
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.
While some defense contractors stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 4.8% since the latest earnings results.
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 $20.09 billion, up 49.2% year on year. This print exceeded analysts’ expectations by 1.4%. Overall, it was a strong quarter for the company with a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ organic revenue estimates.
RTX achieved the fastest revenue growth of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 4.8% since reporting and currently trades at $119.94.
Is now the time to buy RTX? Access our full analysis of the earnings results here, it’s free.
Best Q3: 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 $204.4 million, up 13% year on year, outperforming analysts’ expectations by 12.5%. The business had an incredible quarter with a solid beat of analysts’ organic revenue estimates and an impressive beat of analysts’ EPS estimates.
Mercury Systems scored the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 19.7% since reporting. It currently trades at $41.01.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
Weakest Q3: 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 $2.75 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 20.8% since the results and currently trades at $198.67.
Read our full analysis of Huntington Ingalls’s results here.
General Dynamics (NYSE:GD)
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 result missed analysts’ expectations by 0.8%. Overall, it was a softer quarter as it also produced a miss of analysts’ EBITDA estimates.
The stock is down 12.3% since reporting and currently trades at $268.31.
Read our full, actionable report on General Dynamics here, it’s free.
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 number surpassed analysts’ expectations by 3.9%. Zooming out, it was a softer quarter as it produced a significant miss of analysts’ adjusted operating income estimates.
AeroVironment had the weakest full-year guidance update among its peers. The stock is down 15% since reporting and currently trades at $167.50.
Read our full, actionable report on AeroVironment 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 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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