2 Defense Stocks Poised to Surpass Q2 Earnings Estimates

The second-quarter 2025 reporting cycle for defense stocks, housed within the broader Zacks Aerospace sector, has already started with a major cohort of S&P 500 defense contractors having delivered their results. Impressively, prominent defense primes like Lockheed Martin, Northrop Grumman, Textron, and General Dynamics came up with better-than-expected earnings numbers.

Taking a look at the whole picture, we remain optimistic about the second-quarter results of the remaining defense majors, as escalating geopolitical tensions worldwide continue to fuel the demand for defense products and related services. This, in turn, has been boosting order growth and thereby revenue expansion, which should duly get reflected in the defense stocks’ upcoming operating results.

To this end, it is imperative to mention that a couple of defense stocks, like Archer Aviation (ACHR) and Heico Corp. (HEI), which are set to release their quarterly financial results soon, are likely to beat on earnings this reporting cycle.

Factors Likely to Have Influenced Defense Stocks’ Q2 Growth

Many countries have been ramping up their defense spending amid heightened global geopolitical instability, exacerbated by frequent conflicts in the Middle East. As the world’s largest defense exporter, the United States has always remained at the forefront of this trend, with its government playing a critical role in supporting the nation’s defense industry. Notably, in May 2025, U.S. President Trump reportedly proposed an increase of 13% in the nation’s defense spending (to $1.01 trillion) for fiscal 2026.

Such increases in budget allocation often translate into greater order volumes from the Pentagon and allied governments, potentially boosting the backlogs and thereby revenue generation prospects for major U.S. defense contractors. This impact is expected to become more apparent as other defense players report their second-quarter results.

Prolonged conflicts, such as the Russia-Ukraine and Israel-Iran wars, have also played a role in bolstering defense sector revenues. As of March 2025, the U.S. administration provided $66.9 billion in military assistance to Ukraine since Russia launched its full-scale invasion of Ukraine on Feb. 24, 2022, and approximately $69.7 billion in military assistance since Russia’s initial invasion of Ukraine in 2014.

On the other hand, as of April 2025, the United States had 751 active Foreign Military Sales (“FMS”) cases valued at $39.2 billion with Israel, involving critical defense programs like F-35 Joint Strike Fighter Aircraft; CH-53K Heavy Lift Helicopters; KC-46A Aerial Refueling Tankers; and precision-guided munitions. These substantial aid packages inevitably lead to increased order growth for U.S. defense manufacturers, bolstering their revenues.

For industry players like General Dynamics (GD), which have significant exposure in commercial aerospace, apart from core defense space, are also benefiting from the steadily growing global air travel. Notably, General Dynamics registered solid 4.1% year-over-year growth in its Aerospace segment. Other defense stocks, with commercial aerospace products in their portfolio, may also reflect similar growth trends.

However, persistent headwinds like skilled labor shortages and supply-chain disruptions, along with fresh challenges in the form of enhanced import tariffs recently imposed by the U.S. government on almost all its trading partners, might have posed threats to production and delivery timelines, weighing on the overall second-quarter performance of defense firms to some extent.

Q4 Projections

Per our latest Earnings Outlook, second-quarter earnings for the Aerospace sector are expected to surge 11.5% year over year on 24.8% sales growth.

Zacks Methodology

Given the high degree of diversity in the defense space, finding the right stocks with the potential to beat estimates might be quite a daunting task. However, our proprietary Zacks methodology makes it fairly simple.

We are focusing on stocks that have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Our research shows that for stocks with this combination, the chances of an earnings beat are as high as 70%.

Earnings ESP provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

Below, we present two stocks that are expected to come up with an earnings beat this reporting cycle.

Archer Aviation, although more widely known for its Midnight (eVTOL) Electric Vertical Take-Off and Landing aircraft to be used as an urban air taxi, is also involved in the defense side of the aerospace business. Notably, ACHR is currently working with UK-based Anduril Industries to jointly develop a next-generation aircraft for defense applications. In February 2025, the company raised $301.8 million in funds for the development of its hybrid aircraft platform for the defense market. We can expect further updates on this once the company reports its second-quarter results.

ACHR, with an Earnings ESP of +2.70% and a Zacks Rank #3 at present, is set to release earnings on Aug. 11. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ACHR’s earnings is pinned at a loss of 19 cents per share, implying an improvement from the year-ago quarter’s loss of 24 cents.

Archer Aviation Inc. Price and EPS Surprise

Archer Aviation Inc. price-eps-surprise | Archer Aviation Inc. Quote

Heico manufactures various types of electronic equipment for the aviation as well as defense industries. As a U.S. Department of Defense Prime Contractor, HEI provides critical support to government programs — including the design and supply of aircraft engines and component parts, FAA-approved parts, military-grade insulation products, batteries, and comprehensive repair and return services. We can expect its Defense and Space business unit to duly reflect solid growth in the upcoming quarterly results, backed by growing demand for military jets and associated weapons.

HEI, with an Earnings ESP of +1.16% and a Zacks Rank #2 at present, is expected to release its quarterly numbers soon.

The Zacks Consensus Estimate for HEI’s earnings is pinned at $1.12 per share, implying a 15.5% year-over-year improvement. The consensus mark for sales is pinned at $1.11 billion, suggesting a rise of 12.2% year over year.

Heico Corporation Price and EPS Surprise

Heico Corporation price-eps-surprise | Heico Corporation Quote

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research