The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Kratos (NASDAQ: KTOS) and the rest of the defense contractors stocks fared in Q1.

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 very strong Q1. As a group, revenues beat analysts’ consensus estimates by 3.4% while next quarter’s revenue guidance was 1.8% below.

While some defense contractors stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 3.6% 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 $371 million, up 22.6% year on year. This print exceeded analysts’ expectations by 8.1%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ organic revenue and EBITDA estimates.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ balanced business model, including making internally funded investments in property, plant, equipment and facilities, and the rapid development and fielding of relevant products for the Department of War, while generating growth and profitability, is accelerating as reflected in our Q1 results and 1.6 to 1.0 book to bill ratio. There is a generational recapitalization of the U.S. defense industrial base underway and Kratos is committed to doing its part to ensure that the Department and our country are successful.”

The stock is down 8.5% since reporting and currently trades at $56.32.

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

Best Q1: Mercury Systems (NASDAQ: MRCY)

Founded in 1981, Mercury Systems (NASDAQ: MRCY) specializes in providing processing subsystems and components for primarily defense applications.

Mercury Systems reported revenues of $235.8 million, up 11.5% year on year, outperforming analysts’ expectations by 14.2%. The business had an incredible quarter with a beat of analysts’ EPS and EBITDA estimates.

Mercury Systems scored the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 18.8% since reporting. It currently trades at $98.55.

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

Weakest Q1: Lockheed Martin (NYSE: LMT)

Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE: LMT) specializes in defense, space, homeland security, and information technology products.

Lockheed Martin reported revenues of $18.02 billion, flat year on year, falling short of analysts’ expectations by 0.9%. It was a softer quarter as it posted a significant miss of analysts’ adjusted operating income estimates.

Lockheed Martin delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 3.7% since the results and currently trades at $534.94.

Read our full analysis of Lockheed Martin’s results here.

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 $1.92 billion, down 4.7% year on year. This result surpassed analysts’ expectations by 2.8%. Overall, it was an exceptional quarter as it also produced a solid beat of analysts’ EBITDA estimates.

KBR pulled off the highest full-year guidance raise but had the slowest revenue growth among its peers. The stock is down 13.5% since reporting and currently trades at $33.46.

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

Leonardo DRS (NASDAQ: DRS)

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

Leonardo DRS reported revenues of $846 million, up 5.9% year on year. This print topped analysts’ expectations by 3.3%. It was an exceptional quarter as it also logged a beat of analysts’ EPS and EBITDA estimates.

The stock is up 8.4% since reporting and currently trades at $43.35.

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

Market Update

Late in 2025 into early 2026, there was hand wringing around artificial intelligence. For software companies, the fear was that AI would erode pricing power and compress margins as new tools made it easier to replicate what once required expensive enterprise platforms. Crypto investors had their own version of the same anxiety: if AI agents could trade, allocate capital, and manage wallets autonomously, what exactly was the long-term value of today’s crypto infrastructure?

These concerns triggered a noticeable rotation away from these sectors and into safer havens. But markets rarely dwell on one narrative for long. Spring 2026 came, and the focus shifted abruptly from technological disruption to geopolitical risk. The US’ conflict with Iran became the dominant driver of market psychology, and when geopolitics takes center stage, the script changes quickly. Investors stop debating growth rates and start worrying about oil supply, inflation, and global stability.

Want to invest in winners with rock-solid fundamentals? Check out our 9 Best Market-Beating Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.