Mercury Showcases Expanding Portfolio Of Electronic Warfare Capabilities At Aoc 2025

Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at Leonardo DRS and the best and worst performers in the defense contractors industry.

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.

While some defense contractors stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 2.5% since the latest earnings results.

Leonardo DRS

Developing submarine detection systems for the U.S. Navy, Leonardo DRS is a provider of defense systems, electronics, and military support services.

Leonardo DRS reported revenues of $960 million, up 18.2% year on year. This print exceeded analysts’ expectations by 3.9%. Despite the top-line beat, it was still a mixed quarter for the company with an impressive beat of analysts’ revenue estimates but a miss of analysts’ adjusted operating income estimates.

Unsurprisingly, the stock is down 11.6% since reporting and currently trades at $35.51.

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

Best Q3: 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 8.8% since reporting. It currently trades at $175.18.

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

Delivering aerospace technology during the Cold War-era, Parsons 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 3.8% since the results and currently trades at $82.62.

Read our full analysis of Parsons’s results here.

Kratos

Established with a commitment to supporting national security, Kratos 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 topped analysts’ expectations by 8.3%. Overall, it was a strong quarter as it also recorded an impressive beat of analysts’ organic revenue estimates and a solid beat of analysts’ EBITDA estimates.

The stock is down 11.4% since reporting and currently trades at $72.68.

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

Mercury Systems

Founded in 1981, Mercury Systems specializes in providing processing subsystems and components for primarily defense applications.

Mercury Systems reported revenues of $225.2 million, up 10.2% year on year. This result surpassed analysts’ expectations by 9.5%. It was an exceptional quarter as it also put up a solid beat of analysts’ organic revenue estimates and a beat of analysts’ EPS estimates.

Mercury Systems delivered the biggest analyst estimates beat among its peers. The stock is down 6.4% since reporting and currently trades at $70.86.

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

Mercury Systems delivered third quarter results that exceeded Wall Street’s expectations, with revenue and non-GAAP profit both coming in above analyst forecasts. Management attributed this outperformance to accelerated deliveries on high-priority defense programs and improved execution across manufacturing operations. CEO William Ballhaus emphasized the company’s progress in reducing net working capital and highlighted strong momentum in its backlog of customer orders. Ballhaus stated, “Our ability to accelerate deliveries on a number of our customers' high-priority programs once again contributed to strong results this quarter.”

Is now the time to buy MRCY? Find out in our full research report (it’s free for active Edge members).

Mercury Systems (MRCY) Q3 CY2025 Highlights:

• Revenue: $225.2 million vs analyst estimates of $205.7 million (10.2% year-on-year growth, 9.5% beat)
• Adjusted EPS: $0.26 vs analyst estimates of $0.09 (significant beat)
• Adjusted EBITDA: $35.57 million vs analyst estimates of $23.52 million (15.8% margin, 51.2% beat)
• Operating Margin: -3.8%, up from -6.6% in the same quarter last year
• Backlog: $1.4 billion at quarter end, up 4.5% year on year
• Organic Revenue rose 9.5% year on year vs analyst estimates of flat growth (962.1 basis point beat)
• Market Capitalization: $4.49 billion

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Mercury Systems’s Q3 Earnings Call

• Kenneth Herbert (RBC): asked about the sustainability of accelerated revenue pull-forwards. CEO William Ballhaus replied that while Mercury continues to work on removing delivery constraints, future accelerations are not factored into guidance due to limited visibility until late in each quarter.
• Peter Arment (Baird): questioned production ramp-up for the CPA program. CFO David Farnsworth explained that increased production is unlocking further demand, with ongoing efforts to expand addressable markets for CPA technology.
• Austin Moeller (Canaccord Genuity): requested delivery timelines on LTAMDS contracts. Farnsworth declined specifics but noted that Mercury is working through contracting cycles and expects to provide updates as new bookings materialize.
• Jonathan Ho (William Blair): inquired about Golden Dome funding and Mercury’s positioning. Farnsworth acknowledged uncertainty in funding allocation but stated the company is well positioned across all architectural layers involved in the program.
• Sheila Kahyaoglu (Jefferies): pressed for details on the timing of margin improvements and backlog composition. Farnsworth responded that higher-margin bookings are gradually replacing legacy lower-margin contracts, with full margin expansion expected over the next several quarters as the backlog turns over.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the pace at which Mercury Systems converts its backlog of lower-margin contracts into higher-margin bookings, (2) the impact of automation and added manufacturing capacity on production efficiency and margins, and (3) whether global defense spending initiatives translate into meaningful order growth. Updates on progress in European and U.S. defense programs, as well as any acceleration in customer deliveries, will also be closely tracked.

Mercury Systems currently trades at $74.35, down from $75.58 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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