Major Defence Earnings Amid Gaza Ceasefire

Following the announcement that Israel and Hamas had reached a deal to de-escalate the war in Gaza, US defence stocks wobbled. But rising tensions with Russia have lent support.

Key Earnings This Week

• Lockheed Martin is projected to report earnings on Tuesday of $6.84 per share on $18.5 billion in revenue, with a focus on F-35 deliveries.
• Northrop Grumman's Tuesday earnings are expected at $6.46 per share on $10.7 billion in sales as traders zero in on cost overruns.
• General Dynamics is anticipated to report earnings on Friday of $3.71 per share on sales of $12.5 billion, aided by strong demand for business jets from its Gulfstream unit.

Shift in US Defence Focus

Easing geopolitical tensions in Israel have been replaced with rising tensions around Russia and China. After Israel and Hamas reached a deal that offered steps towards peace, US President Donald Trump turned his attention to the ongoing war between Russia and Ukraine. At stake was the delivery of Tomahawk missiles to Ukraine, which was ultimately denied after Trump said the US needed them. The denial came after Trump and Putin agreed to hold a meeting "in the coming weeks" to discuss the war. Meanwhile, despite the prolonged government shutdown, the US Defence Department stepped up its procurement of missiles. Recent studies noted that the US could run out of missiles in less than a week if it intervened in a theoretical Chinese invasion of Taiwan. The shifting nature of war, including anti-drone technologies and Trump's push for a Golden Dome similar to Israel's Iron Dome defence shield, is projected to increase missile demand by 10-20% over the next few years. Investors will get additional insight into how the outlook will impact defence stocks with three major US military firms reporting this week.

Lockheed Martin Supported By Deliveries

The manufacturer of the F-35 stealth jet will report earnings on Tuesday, before the markets open. The consensus among analysts is that Lockheed Martin (LMT) will see its EPS slide to $6.33 per share, down from $6.84 a year ago. This is despite expectations of an 8.3% increase in sales to $18.5 billion. The difference might be the result of timing, as the company boosted deliveries last quarter and was able to recognise revenue while increasing spending to ramp up production to meet demand for its Missiles and Fire Control unit.

Northrop Grumman Facing Cost Challenges

The missile manufacturer has been struggling to keep up with the surge in its share price earlier this year, after missing a key contract to supply autonomous drones to the US Air Force. Northrop Grumman (NOC) will report earnings after the close on Tuesday, with the consensus among analysts for earnings to dip to $6.46 per share compared to $7.00 a year ago. Sales are expected to increase 7.2% to $10.7 billion. Cost overruns in the Sentinel missile programme, as well as in supporting the B-21 Raider, are expected to have weighed on earnings. However, the company maintains a $93 billion backlog that secures future income.

General Dynamics Rising in the Business Segment

The company, best known for producing missiles, is seeing strong growth in its Gulfstream division. Demand for business jets has helped elevate the company's earnings and has convinced analysts that it might have further upside. General Dynamics (GD) will report earnings on Friday, with EPS expected to increase to $3.71 per share from $3.35 a year earlier. Revenue is projected to grow 7.4% to reach $12.5 billion. Investors will likely keep an eye on the company's cash flow after it reported a drop in leverage last quarter, which could allow it to increase the dividend or announce a share buyback.

Key Takeaways

This week's earnings arrive as investors recalibrate their expectations around geopolitics and military spending. The Gaza ceasefire rattled sentiment, but the focus has quickly returned to long-term drivers, including Trump's Golden Dome initiative and tensions related to Russia and China. With defence budgets expanding and missile procurement accelerating, traders will be interested in whether Lockheed, Northrop, and General Dynamics can meet high expectations and whether the sector's fundamentals can translate into growth.