Defense Contractors Stocks Q2 Recap: Benchmarking General Dynamics (NYSE:GD)

The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how General Dynamics (NYSE:GD) and the rest of the defense contractors stocks fared in Q2.

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.

Big picture, the Federal Reserve has a dual mandate of inflation and employment. The former had been running hot throughout 2021 and 2022 but cooled towards the central bank's 2% target as of late. This prompted the Fed to cut its policy rate by 50bps (half a percent) in September 2024. Given recent employment data that suggests the US economy could be wobbling, the markets will be assessing whether this rate and future cuts (the Fed signaled more to come in 2024 and 2025) are the right moves at the right time or whether they're too little, too late for a macro that has already cooled.

Luckily, defense contractors stocks have performed well with share prices up 11% on average since the latest earnings results.

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. This print exceeded analysts’ expectations by 4.1%. Despite the top-line beat, it was still a slower quarter for the company with a miss of analysts’ backlog sales estimates.

"This was a strong quarter overall, as reflected by solid growth in all key measures from a year ago. Our businesses continue to focus on disciplined execution of their programs, cost and schedule," said Phebe N. Novakovic, chairman and chief executive officer.

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

Read our full report on General Dynamics 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 revenueand 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.

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, falling short of analysts’ expectations by 1.1%. It was a slower quarter as it posted a miss of analysts’ backlog sales estimates and full-year revenue guidance missing analysts’ expectations.

KBR delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 6.3% since the results and currently trades at $64.31.

Read our full analysis of KBR’s results here.

CACI (NYSE:CACI)

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 $2.04 billion, up 19.7% year on year. This number topped analysts’ expectations by 5.5%. It was an exceptional quarter as it also put up an impressive beat of analysts’ backlog sales and operating margin estimates.

The stock is up 13.1% since reporting and currently trades at $504.56.

Read our full, actionable report on CACI 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 result beat analysts’ expectations by 6.6%. Overall, it was a very strong quarter as it also recorded an impressive beat of analysts’ Commercial Operations 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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