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Q1 Winners and Losers: Kratos (NASDAQ:KTOS) vs. the Rest of the Defense Contractor Stocks

The end of earnings season is always a good time to take a step back and look at who shone (and who didn’t so much). Let’s take a look at how defense contractor stocks performed in Q1, starting with Kratos (NASDAQ:KTOS).

Defense contractors typically require technical expertise and government approval. Companies in this sector can also enter into long-term contracts with government agencies, which leads to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Recently, geopolitical tensions, whether it’s Russia’s invasion of Ukraine or China’s aggression toward Taiwan, have emphasized the need for defense spending. On the other hand, demand for these products can fluctuate with defense budgets and even who the president is, as different administrations can have vastly different ideas about how federal funds should be allocated.

The 14 defense contractor stocks we track reported a strong first quarter, with earnings averaging 3.2% topping analysts’ consensus estimates, while revenue forecasts for the next quarter were 0.7% above consensus. Inflation ticked up to the Fed’s 2% target by the end of 2023, leading to strong stock market performance. The start of 2024 has been a bumpy ride as the market alternates between optimism and pessimism around rate cuts amid mixed inflation data, and while some defense contractor stocks have done slightly better than others, they’ve collectively fallen, with share prices down an average of 1.4% since last earnings.

Kratos (NASDAQ:KTOS)

Founded to support national security, Kratos (NASDAQGS:KTOS) is a provider of advanced engineering, technology and security solutions tailored to critical national security applications.

Kratos reported revenue of $277.2 million, up 19.6% year over year, beating analysts’ expectations by 10.7%. It was a very strong quarter for the company, impressively beating analysts’ organic revenue and profit estimates.

Eric DeMarco, Kratos President and CEO, said, “Kratos’ position as a leading defense technology company is reflected in our first quarter results, which were above our guidance. Q1 strength included our unmanned systems, air defense, propulsion system, turbine technologies and Israel-based microwave electronics businesses, as well as production and delivery of certain programs that were executed earlier in the year than initially anticipated. With the U.S. 2024 defense budget now complete, we have greater confidence in our full year 2024 financial guidance.”

Total turnover of KratosTotal turnover of Kratos

Total turnover of Kratos

Kratos scored the biggest analyst estimate of the entire group. The stock has risen 8.2% since the results and is currently trading at $20.32.

Is now the time to buy Kratos? Check out our full profit analysis here, it’s free.

Best Q1: Northrop Grumman (NYSE:NOC)

Northrop Grumman (NYSE:NOC) is responsible for developing the first stealth bomber and specializes in providing aerospace, defense and security solutions for a variety of industrial applications.

Northrop Grumman reported revenue of $10.13 billion, up 8.9% year over year, beating analysts’ expectations by 3.8%. It was a stunning quarter for the company, impressively beating analysts’ organic revenue estimates.

Northrop Grumman Total RevenueNorthrop Grumman Total Revenue

Northrop Grumman Total Revenue

The stock has fallen 8.3% since the results and is currently trading at $435.

Is Now Time to Buy Northrop Grumman? Get our full earnings analysis here, it’s free.

Weakest Q1: Mercury Systems (NASDAQ:MRCY)

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

Mercury Systems reported revenue of $208.3 million, down 21% year-over-year, 2.9% below analysts’ expectations. It was a weak quarter for the company, with analysts missing earnings estimates.

Mercury Systems had the weakest performance compared to analyst estimates and the slowest revenue growth in the group. The stock has fallen 2.6% since the results and is currently trading at $28.35.

Read our full analysis of Mercury Systems’ results here.

CACI (NYSE:CACI)

CACI International (NYSE:CACI) was formed to commercialize SIMSCRIPT and provides defense, intelligence and IT solutions to support national security and government transformation.

CACI reported revenue of $1.94 billion, up 11.1% year over year, beating analysts’ expectations by 4.4%. It was a strong quarter for the company, impressively beating analysts’ backlog sales estimates.

CACI delivered the biggest full-year guidance hike among its peers. The stock has risen 12.7% since the results and is currently trading at $428.27.

Read our full, actionable report on CACI here. It’s free.

BWX (NYSE:BWXT)

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

BWX reported revenue of $604 million, up 6.3% year-over-year, in line with analyst expectations. It was a solid quarter for the company, with a significant beat on analysts’ earnings estimates.

BWX had the weakest full-year guidance update among its peers. The stock has fallen 5.9% since the results, currently trading at $93.02.

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

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