As the Q3 earnings season wraps, let’s dig into this quarter’s best and worst performers in the defense contractors industry, including 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 13 defense contractors stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was in line.

Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 5% 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 $347.6 million, up 26% year on year. This print exceeded analysts’ expectations by 8.3%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ organic revenue estimates and a solid beat of analysts’ EBITDA estimates.

Eric DeMarco, Kratos’ President and CEO, said, “Our Q3 financial results are representative of the increasing demand for Kratos’ military grade hardware, systems and software to support U.S. National Security and its allies. Also reflective of this demand, we are once again increasing our full year 2025 revenue guidance, and we are increasing our full year 2026 organic revenue growth forecast up to 15 percent to 20 percent above our expected increased annual 2025 revenue. Additionally, we are providing a preliminary 2027 organic revenue growth target of 18 percent to 23 percent above this increased 2026 estimated revenue range. We are also expecting EBITDA margin expansion for both 2026 and 2027, as we scale the business and transition to more profitable contracts, with EBITDA margins expected to increase even as we continue to make significant bid, proposal and other new opportunity related investments as we have in 2025, as we pursue multiple large new program opportunities.”

Unsurprisingly, the stock is down 15.4% since reporting and currently trades at $69.35.

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

Best Q3: 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 $22.48 billion, up 11.9% year on year, outperforming analysts’ expectations by 5.4%. The business had a stunning quarter with an impressive beat of analysts’ organic revenue estimates and a solid beat of analysts’ EBITDA estimates.

The market seems happy with the results as the stock is up 6.1% since reporting. It currently trades at $170.86.

Is now the time to buy RTX? Access our full analysis of the earnings results here, it’s free for active Edge members.

Slowest Q3: Parsons (NYSE: PSN)

Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.

Parsons reported revenues of $1.62 billion, down 10.4% year on year, falling short of analysts’ expectations by 2.3%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates and a miss of analysts’ backlog estimates.

Parsons delivered the slowest revenue growth in the group. Interestingly, the stock is up 2.7% since the results and currently trades at $81.69.

Read our full analysis of Parsons’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 $2.29 billion, up 11.2% year on year. This print topped analysts’ expectations by 1.1%. Overall, it was a strong quarter as it also recorded a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ adjusted operating income estimates.

The stock is up 15.3% since reporting and currently trades at $599.90.

Read our full, actionable report on CACI here, it’s free for active Edge members.

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 $10.42 billion, up 4.3% year on year. This result lagged analysts' expectations by 2.7%. Zooming out, it was a mixed quarter as it also produced an impressive beat of analysts’ EBITDA estimates but a significant miss of analysts’ revenue estimates.

Northrop Grumman had the weakest performance against analyst estimates among its peers. The stock is down 5.4% since reporting and currently trades at $569.26.

Read our full, actionable report on Northrop Grumman here, it’s free for active Edge members.

Market Update

Thanks to the Fed’s series of rate hikes in 2022 and 2023, inflation has cooled significantly from its post-pandemic highs, drawing closer to the 2% goal. This disinflation has occurred without severely impacting economic growth, suggesting the success of a soft landing. The stock market thrived in 2024, spurred by recent rate cuts (0.5% in September and 0.25% in November), and a notable surge followed Donald Trump’s presidential election win in November, propelling indices to historic highs. Nonetheless, the outlook for 2025 remains clouded by potential trade policy changes and corporate tax discussions, which could impact business confidence and growth. The path forward holds both optimism and caution as new policies take shape.

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