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 Q3. 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 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.
Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 7.2% since the latest earnings results.
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. This print exceeded analysts’ expectations by 12.5%. Overall, it was an incredible quarter for the company with an impressive beat of analysts’ organic revenue estimates and a solid beat of analysts’ EPS estimates.
“Our first quarter 2025 results were generally as expected, and I am optimistic about 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.
Mercury Systems achieved the biggest analyst estimates beat of the whole group. Unsurprisingly, the stock is up 11.2% since reporting and currently trades at $38.07.
Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.
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 $4.19 billion, up 6.9% year on year, outperforming analysts’ expectations by 3%. The business had a stunning quarter with a solid beat of analysts’ backlog and EPS estimates.
Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 5.5% since reporting. It currently trades at $160.35.
Is now the time to buy Leidos? 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 23% since the results and currently trades at $193.25.
Read our full analysis of Huntington Ingalls’s results here.
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 print surpassed analysts’ expectations by 3.9%. Aside from that, 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 18.3% since reporting and currently trades at $161.
Read our full, actionable report on AeroVironment 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 $20.09 billion, up 49.2% year on year. This print topped analysts’ expectations by 1.4%. It was a strong quarter as it also recorded an impressive beat of analysts’ EBITDA estimates and a solid beat of analysts’ organic revenue estimates.
RTX achieved the fastest revenue growth among its peers. The stock is down 7.5% since reporting and currently trades at $116.50.
Read our full, actionable report on RTX here, it’s free.
Market Update
In response to the Fed's rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed's 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.
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