Earnings results often indicate what direction a company will take in the months ahead. With Q2 behind us, let’s have a look at Leidos (NYSE:LDOS) 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 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.

The Fed cut its policy rate by 50bps (half a percent) in September 2024, the first in roughly four years. This marks the end of its most pointed inflation-busting campaign since the 1980s. While CPI (inflation) readings have been supportive as of late, employment measures bordered on concerning. The markets will be determining whether this rate cut (and more potential ones in 2024 and 2025) are ideal timing to support the economy or a bit too late for a macro that has already cooled too much.

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 $4.13 billion, up 7.7% year on year. This print exceeded analysts’ expectations by 1.7%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ operating margin estimates and a solid beat of analysts’ earnings estimates.

Thomas Bell, Leidos Chief Executive Officer, commented, "In the second quarter, Leidos continued its industry-leading profitable growth and strong cash generation, showcasing the progress we've made towards our key operational priorities and the dedication to our "Promises Made, Promises Kept" philosophy.

Interestingly, the stock is up 1.3% since reporting and currently trades at $155.

Is now the time to buy Leidos? Access our full analysis of the earnings results 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.