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Winners And Losers Of Q1: Kratos (NASDAQ:KTOS) Vs The Rest Of The Defense Contractors Stocks


Radek Strnad /
2024/07/03 5:24 am EDT

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 Q1, starting with Kratos (NASDAQ:KTOS).

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 14 defense contractors stocks we track reported a strong Q1; on average, revenues beat analyst consensus estimates by 3.2%. while next quarter's revenue guidance was 0.7% above consensus. Inflation progressed towards the Fed's 2% goal at the end of 2023, leading to strong stock market performance. The start of 2024 has been a bumpier ride, as the market switches between optimism and pessimism around rate cuts due to mixed inflation data, and while some of the defense contractors stocks have fared somewhat better than others, they collectively declined, with share prices falling 1.4% on average since the previous earnings results.

Kratos (NASDAQ:KTOS)

Established with a commitment to supporting national security, Kratos (NASDAQGS:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Kratos reported revenues of $277.2 million, up 19.6% year on year, topping analysts' expectations by 10.7%. It was a very good 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 first quarter results, which came in above our forecast. Q1 strength included our unmanned systems, air defense, propulsion system, turbine technologies and Israel-based microwave electronics businesses, and also production and delivery on certain programs that were executed earlier in the year than initially expected. With the 2024 U.S. defense budget now complete, we have increased confidence in our full year 2024 financial forecast.”

Kratos Total Revenue

Kratos scored the biggest analyst estimates beat of the whole group. The stock is up 8.2% since the results and currently trades at $20.32.

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

Best Q1: Northrop Grumman (NYSE:NOC)

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 $10.13 billion, up 8.9% year on year, outperforming analysts' expectations by 3.8%. It was a stunning quarter for the company, with an impressive beat of analysts' organic revenue estimates.

Northrop Grumman Total Revenue

The stock is down 8.3% since the results and currently trades at $435.

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

Weakest Q1: Mercury Systems (NASDAQ:MRCY)

Listed on the NASDAQ in 1998, Mercury Systems (NASDAQGS:MRCY) specializes in providing processing subsystems and components for defense applications.

Mercury Systems reported revenues of $208.3 million, down 21% year on year, falling short of analysts' expectations by 2.9%. It was a weak quarter for the company, with a miss of analysts' earnings estimates.

Mercury Systems had the weakest performance against analyst estimates and slowest revenue growth in the group. The stock is down 2.6% since the results and currently trades at $28.35.

Read our full analysis of Mercury Systems'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 $1.94 billion, up 11.1% year on year, surpassing analysts' expectations by 4.4%. It was a strong quarter for the company, with an impressive beat of analysts' backlog sales estimates.

CACI delivered the highest full-year guidance raise among its peers. The stock is up 12.7% since the results and currently trades at $428.27.

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 $604 million, up 6.3% year on year, in line with analysts' expectations. It was a solid quarter for the company, with a decent beat of analysts' earnings estimates.

BWX had the weakest full-year guidance update among its peers. The stock is down 5.9% since the results and currently trades at $93.02.

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

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