Earnings results often indicate what direction a company will take in the months ahead. With Q2 behind us, let’s have a look at Kratos (NASDAQ:KTOS) and its peers.

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 very strong Q2. As a group, revenues beat analysts’ consensus estimates by 4.7% while next quarter’s revenue guidance was 6.7% below.

After much suspense, the Federal Reserve cut its policy rate by 50bps (half a percent) in September 2024. This marks the central bank’s first easing of monetary policy since 2020 and the end of its most pointed inflation-busting campaign since the 1980s. Inflation had begun to run hot in 2021 post-COVID due to a confluence of factors such as supply chain disruptions, labor shortages, and stimulus spending. While CPI (inflation) readings have been supportive lately, employment measures have prompted some concern. Going forward, the markets will debate whether this rate cut (and more potential ones in 2024 and 2025) is perfect timing to support the economy or a bit too late for a macro that has already cooled too much.

Luckily, defense contractors stocks have performed well with share prices up 10.5% 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 $300.1 million, up 16.8% year on year. This print exceeded analysts’ expectations by 8.7%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ organic revenue and earnings estimates.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ position as a leading defense technology company is reflected in our second quarter and six month year to date organic growth rates of 16.7% and 18.1%, respectively. We are growing the business, while also increasing our profitability, with second quarter and year to date EBITDA growth of approximately 38.4% and 44.8%, over Q2 and six months year to date 2023, respectively. Additionally, we are making significant investments in facilities, manufacturing capacity, infrastructure, research, development and more, to address growing U.S. National Security needs and certain large, new program and system opportunities for Kratos, including as reflected in our record opportunity pipeline of $12.0 billion.”

Interestingly, the stock is up 15.8% since reporting and currently trades at $23.29.

Is now the time to buy Kratos? Access our full analysis of the earnings results here, it’s free.

Best Q2: 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 $248.6 million, down 1.8% year on year, outperforming analysts’ expectations by 7.8%. The business had an incredible quarter with an impressive beat of analysts’ organic revenue and earnings estimates.

The market seems happy with the results as the stock is up 11.4% since reporting. It currently trades at $37.89.

Is now the time to buy Mercury Systems? Access our full analysis of the earnings results here, it’s free.

Weakest Q2: 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 $11.98 billion, up 18% year on year, exceeding analysts’ expectations by 4.1%. Still, it was a slower quarter as it posted a miss of analysts’ backlog sales estimates.

Interestingly, the stock is up 1.9% since the results and currently trades at $300.15.

Read our full analysis of General Dynamics’s results here.

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 $1.86 billion, up 5.8% year on year. This result lagged analysts' expectations by 1.1%. It was a slower quarter as it also logged a miss of analysts’ backlog sales estimates. In addition, full-year revenue guidance missed analysts’ expectations.

KBR had the weakest performance against analyst estimates among its peers. The stock is down 6.3% since reporting and currently trades at $64.31.

Read our full, actionable report on KBR here, it’s free.

BWX (NYSE:BWXT)

Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE:BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.

BWX reported revenues of $681.5 million, up 11.3% year on year. This number beat analysts’ expectations by 6.6%. Overall, it was a very strong quarter as it also logged an impressive beat of analysts’ revenue and operating margin estimates.

The stock is up 17.9% since reporting and currently trades at $109.

Read our full, actionable report on BWX here, it’s free.

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