Let’s dig into the relative performance of General Dynamics (NYSE: GD) and its peers as we unravel the now-completed Q1 defense contractors earnings season.
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 13 defense contractors stocks we track reported a strong Q1. As a group, revenues beat analysts’ consensus estimates by 1.6% while next quarter’s revenue guidance was in line.
In light of this news, share prices of the companies have held steady as they are up 1.1% on average since the latest earnings results.
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 $12.22 billion, up 13.9% year on year. This print exceeded analysts’ expectations by 1.8%. Despite the top-line beat, it was still a mixed quarter for the company with a solid beat of analysts’ adjusted operating income estimates but a significant miss of analysts’ backlog estimates.
"We continue to see steady growth and improvement in operating performance across the defense portfolio," said Phebe Novakovic, chairman and chief executive officer "The Aerospace segment saw a significant increase in profitability, reflecting the manufacturing efficiencies associated with reaching higher levels of production on our new aircraft models."
The market was likely pricing in the results, and the stock is flat since reporting. It currently trades at $271.90.
Is now the time to buy General Dynamics? Access our full analysis of the earnings results here, it’s free.
Best Q1: 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 $4.25 billion, up 6.8% year on year, outperforming analysts’ expectations by 3.6%. The business had a very strong quarter with an impressive beat of analysts’ backlog and EBITDA estimates.
The market seems happy with the results as the stock is up 5.2% since reporting. It currently trades at $155.50.
Is now the time to buy Leidos? Access our full analysis of the earnings results here, it’s free.
Weakest 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 $9.47 billion, down 6.6% year on year, falling short of analysts’ expectations by 4.7%. It was a disappointing quarter as it posted full-year EPS guidance missing analysts’ expectations.
Northrop Grumman delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 9.2% since the results and currently trades at $482.
Read our full analysis of Northrop Grumman’s results here.
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 $20.31 billion, up 5.2% year on year. This print topped analysts’ expectations by 1.7%. Overall, it was a strong quarter as it also logged an impressive beat of analysts’ EBITDA estimates.
The stock is up 2% since reporting and currently trades at $128.49.
Read our full, actionable report on RTX here, it’s free.
Leonardo DRS (NASDAQ: DRS)
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Leonardo DRS reported revenues of $799 million, up 16.1% year on year. This number beat analysts’ expectations by 9.2%. It was a very strong quarter as it also recorded a solid beat of analysts’ adjusted operating income estimates and an impressive beat of analysts’ EPS estimates.
Leonardo DRS scored the biggest analyst estimates beat and fastest revenue growth among its peers. The stock is up 11.7% since reporting and currently trades at $41.27.
Read our full, actionable report on Leonardo DRS 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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