As the Q2 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 14 defense contractors stocks we track reported a very strong Q2. As a group, revenues beat analysts’ consensus estimates by 4% while next quarter’s revenue guidance was 1.1% above.

Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 7% 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 $458.8 million, up 30.5% year on year. This print exceeded analysts’ expectations by 11.6%. Overall, it was a very strong quarter for the company with a solid beat of analysts’ organic revenue estimates and a beat of analysts’ EPS estimates.

Kratos scored the biggest analyst estimate beat and fastest revenue growth among its peers. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 11.8% since reporting and currently trades at $45.72.

We think Kratos is a good business, but is it a buy today? Read our full report here, it’s free.

Best Q2: Huntington Ingalls (NYSE: HII)

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.

Huntington Ingalls reported revenues of $3.42 billion, up 10.9% year on year, outperforming analysts’ expectations by 8.2%. The business had an incredible quarter with a beat of analysts’ EPS estimates.

Although it had a fine quarter compared to its peers, the market seems unhappy with the results as the stock is down 5.7% since reporting. It currently trades at $264.54.

Is now the time to buy Huntington Ingalls? Access our full analysis of the earnings results here, it’s free.

Weakest Q2: 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 $1.58 billion, flat year on year, falling short of analysts’ expectations by 1.9%. It was a disappointing quarter as it posted full-year revenue guidance missing analysts’ expectations significantly and full-year EBITDA guidance missing analysts’ expectations significantly.

Parsons delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update in the group. As expected, the stock is down 30.7% since the results and currently trades at $43.

Read our full analysis of Parsons’s results here.

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 $14.09 billion, up 8.1% year on year. This result topped analysts’ expectations by 4%. Overall, it was an exceptional quarter as it also produced a beat of analysts’ EPS estimates.

The stock is down 14.2% since reporting and currently trades at $337.47.

Read our full, actionable report on General Dynamics here, it’s free.

KBR (NYSE: KBR)

Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.

KBR reported revenues of $1.98 billion, up 1.6% year on year. This print beat analysts’ expectations by 3.6%. Overall, it was an exceptional quarter as it also put up an impressive beat of analysts’ EBITDA estimates and full-year revenue guidance beating analysts’ expectations.

The stock is down 4% since reporting and currently trades at $34.50.

Read our full, actionable report on KBR here, it’s free.

Market Update

Over the past year, investors have been forced to repeatedly answer the same question: what is the market’s biggest risk? The answer has changed several times, and each shift has reshaped market leadership.

Late in 2025 and early 2026, artificial intelligence became the market’s primary uncertainty. Investors questioned whether AI would erode software pricing power and weaken competitive moats as AI made it easier to replicate once-differentiated products.

By the spring, technology took a back seat to geopolitics. The U.S. conflict with Iran briefly became the market’s dominant narrative, raising concerns about oil prices, inflation, and global growth. But as energy markets remained orderly and fears of a prolonged supply disruption faded, investors quickly turned their focus back to fundamentals.

Want to invest in winners with rock-solid fundamentals? Check out our Hidden Gem Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.