Naval Systems & Shipbuilding

Mercury Systems reported fourth quarter fiscal 2026 revenues of $289.8 million, up 6.1% year on year and 9.2% above analysts' expectations, as the 14 defense contractors stocks tracked by the report collectively beat consensus revenue estimates by 4% and guided next quarter 1.1% above expectations. Chairman and CEO Bill Ballhaus said the company delivered record bookings, record backlog, record revenue, the highest EBITDA margin of the year, and robust free cash flow, though Mercury shares are down 18.5% since reporting and trade at $85.56. Huntington Ingalls posted the group's best quarter, with revenues of $3.42 billion, up 10.9% year on year and 8.2% above expectations, while its shares have traded sideways at $278.53. Parsons delivered the weakest quarter, with revenues of $1.58 billion, flat year on year and 1.9% below expectations, alongside full-year revenue and EBITDA guidance that missed significantly, sending its stock down 25.5% to $46.19. Northrop Grumman reported revenues of $10.88 billion, up 5.1% and 0.5% above expectations, with shares flat at $526.95, and Leidos reported revenues of $4.56 billion, up 7.2% and 2.6% above expectations, with its stock up 10.4% at $131.09. On average, defense contractors shares are down 2.9% since the latest earnings results.

The U.S. Department of War announced a $336,112,000 Navy contract for Huntington Ingalls Industries to advance procurement of long-lead materials for construction of the future USS William J. Clinton, designated CVN 82. Work will be executed in Newport News, Virginia, with completion anticipated by March 2039, and shipbuilding and conversion funding from FY 2026 will be obligated at the time of award. The award is a sub-component of the Navy's larger aircraft carrier replacement program, which defense websites say the service plans to fund at $22.34 billion over the next five years, with this contract seen as among the first in a sequence of awards as procurement accelerates. The sole-source contract reaffirms HII's status as the sole nuclear carrier builder for the U.S. Navy and extends revenue visibility to 2039, supporting the company's raised full-year shipbuilding revenue guidance of $10.2 billion to $10.4 billion and shipbuilding operating margin of 6% to 6.5%. The contract is cost-only and undefinitized, meaning work begins before final pricing and terms are agreed, adding to cash strain after HII used $31 million of net cash in operating activities in Q2, spent $193 million on capital expenditure, and posted negative free cash flow of $611 million for the first half of 2026 against full-year FCF guidance of $500-600 million. Hedge fund ownership in HII rose 18% in the second quarter to 47 funds from 40, with AQR Capital Management remaining the largest stakeholder at approximately $184 million as of June 30, 2026, followed by Diamond Hill Capital at over $55 million and Citadel Investment Group at $53 million.

Marusan Securities has maintained its "Buy" rating on Tokyo Keiki and raised its target price to 13,300 yen. The move reflects the company's upward revision of its full-year company plan on growth in marine and port equipment as well as defense and communications equipment, and the brokerage also expressed the view that over the medium term new areas for the company, such as unmanned asset-related business and work for Australia's next-generation general-purpose frigates, will drive an acceleration in earnings growth. Buying in defense-related names today also provided support.

BWX Technologies announced on September 3 that it secured a $4 million contract to develop a conceptual design for the first module of a new Lithium Processing Facility for the U.S. National Nuclear Security Administration. The planned facility is meant to modernize and replace aging infrastructure used for lithium reprocessing while supporting purification, component production, and other nuclear security activities. Heatherly Dukes, president of BWXT's Technical Services Group, said the project represents an important investment in modernizing the nation's nuclear security infrastructure. The $4 million award is small relative to BWXT's more than $8.6 billion backlog at the end of the second quarter and is unlikely to significantly affect near-term earnings and cash flows, but it could lead to follow-on work: after the initial four-month first phase, the NNSA plans to select one of two companies for the next design phase and potential construction contract. The win also fits a broader expansion of BWXT's government business, which includes a near-sole-source monopoly supplying nuclear reactors and high-assay enriched fuel for the U.S. Navy's submarine and aircraft carrier fleet, and its BWXT Advanced Nuclear Reactor technology was recently selected by the U.S. Army for its Janus program.

HII announced it has been awarded a $336 million undefinitized contract from the U.S. Navy to begin procurement of long-lead time materials for the construction of the planned aircraft carrier CVN 82 at its Newport News Shipbuilding division. The award initiates advanced procurement of propulsion plant materials critical to the future construction of CVN 82. Bryan Caccavale, NNS vice president of program management, said ordering the materials necessary to build the world's mightiest aircraft carriers is a critical first step as planning begins for CVN 82, and that the contract sends an important demand signal to the thousands of suppliers across the nation who make up the aircraft carrier industrial base. CVN 82 will continue the legacy of highly capable nuclear-powered U.S. aircraft carriers.

Kratos Defense & Security Solutions has received a single-award Phase 1 agreement with an initial projected ceiling of $175 million across multiple phases to develop an organic sustainment capability for the U.S. Navy's AN/SPY-1 radar systems under Project Anaconda. The program could deepen Kratos' involvement in mission-critical naval systems and create additional opportunities if later phases are awarded. Project Anaconda fits closely with Kratos' existing defense electronics and C5ISR portfolio, which includes electronic warfare, missile and radar systems, microwave electronics and air-defense technologies. The multi-phase structure could also provide Kratos with longer-term program visibility, and successful execution of the initial phase could position the company for additional work over time. The award aligns with Kratos' broader strategy of pursuing larger, higher-value national security opportunities.

West Texas and Brent crude futures both closed above $100 a barrel as investors feared that supply tightness would intensify, after reports of the largest attack on cargo ships since the war between the United States and Iran began in late February. Meanwhile, President Donald Trump of the United States insisted he does not regret deciding to launch war against Iran, and Scott Bessent, the US Treasury Secretary, revealed on Thursday, September 10, that the US government will sanction a major bank next week to pressure Iran into ending a war that has lasted more than six months. The news website Axios reported, citing two US officials, that Prince Mohammed bin Salman, Crown Prince of Saudi Arabia, called President Trump twice last Thursday to urge the United States to launch strikes on the Houthis, but President Trump rejected the request. On the economic front, The Wall Street Journal reported that the US Department of Defense is negotiating a loan of about $5 billion for Fluidstack, an AI cloud startup, to strengthen the US data center supply chain. Meanwhile, Micron Technology announced total compensation for direct production-line employees in Taiwan of up to the equivalent of 35 to 68 months' salary, or at least NT$1.7 million in cash, for fiscal year 2026, and Samsung Electronics and Qualcomm have still not reached an agreement to hire Samsung to produce processor chips using 2-nanometer technology, as they cannot agree on price, which could push production back to next year.

Japan's Ministry of Land, Infrastructure, Transport and Tourism announced on the 11th that, as the second round of measures to revive the domestic shipbuilding industry, it has decided to provide up to 98 billion yen in support for capital investment plans by five companies: Oshima Shipbuilding, Kawasaki Heavy Industries, Shin Kurushima Dockyard, Naikai Zosen, and Mitsubishi Shipbuilding. The aid will be disbursed through a 350 billion yen shipbuilding industry revival fund. The subsidies come to about 6.1 billion yen for Oshima Shipbuilding, about 15.6 billion yen for Kawasaki Heavy Industries, about 32 billion yen for the Shin Kurushima Dockyard group, about 4.3 billion yen for Naikai Zosen, and about 40 billion yen for Mitsubishi Shipbuilding. Combined with the first round of three projects, including support already decided for Imabari Shipbuilding, public and private investment over the next ten years will reach roughly 900 billion yen, of which up to about 311 billion yen will be provided as support.

GE Aerospace's Defense & Propulsion Technologies segment grew revenue 16% year over year to $3.4 billion in the second quarter of 2026, with the Defense & Systems business up 11.7% to $2.2 billion and Propulsion & Additive Technologies up 23.4% to $1.2 billion. Recent contract wins include a Republic of Korea Navy deal for 12 LM2500+G4 marine gas turbine engines for its KDDX naval destroyer project, a Defense Innovation Unit contract for a hypersonic test bed under the HyCAT project, and a Turkish Aerospace Industries contract to continue integrating the F404 engine into Türkiye's Hurjet jet trainer. Segment orders rose 12% year over year in the quarter, operating profit grew 18% to $475 million, and the company exited the quarter with a total backlog of $210 billion. For 2026, GE expects Defense & Propulsion Technologies revenue to increase in the low-double-digit range. GE also recently agreed to acquire Consolidated Precision Products from Warburg Pincus and Berkshire Partners for about $11.75 billion, using $7 billion in cash and new debt for the remaining consideration.

Iran has signaled it is ready to escalate its war with the United States to a more intense level and will step up retaliatory strikes if the US continues to attack its territory and infrastructure. Meanwhile, US President Donald Trump believes the war, now in its seventh month, could end within a few weeks and expects it to conclude immediately after the US midterm elections in November, scheduled for November 3. An unnamed senior Iranian official said Tehran has no intention of backing down under pressure from the US naval blockade and attacks on Iranian oil tankers, even as domestic economic pressure intensifies, with inflation accelerating to nearly 90% and the rial depreciating rapidly. But Iran's leadership sees the war with the US as a threat to the country's very existence, leaving it with little choice but to keep fighting. There is still no sign of the fighting easing. The US disclosed that one of its warships had to evade an Iranian attack before the US responded by destroying five Iranian energy tankers. Tehran then fired about 20 missiles at an air base in Jordan used by US forces, and also attacked US Navy vessels and several commercial ships. The Wall Street Journal reported that senior US government officials, including Vice President JD Vance and Secretary of State Marco Rubio, raised the possibility that Iran may refuse to soften its stance even as the US increases pressure, and that the war could drag on through the remainder of Trump's presidential term, which ends in January 2029. Energy prices have risen sharply, with Brent crude topping 100 dollars a barrel on Wednesday, bringing its gain to about 65% since the start of the year, while diesel prices at US service stations hit a record high last week.

Senior U.S. government officials believe Iran will keep resisting American pressure, including a naval blockade, and that the conflict could continue until January 2029, when Trump's term ends, The Wall Street Journal reported, citing U.S. government officials. Vice President Vance and Secretary of State Rubio are among those expressing this view, and senior White House officials raised the possibility in private discussions with Trump that the war with Iran could drag on until the end of his term. Trump, however, said on the 9th that he expects the war to end within weeks, continued to claim that Iran has lost its fighting capability, and told reporters that the war will end quickly once the November U.S. midterm elections are over, putting him at odds with the view of the senior U.S. officials reported by the Journal.

Jefferies turned bullish on the nuclear energy sector on September 3, initiating coverage of Cameco Corporation and BWX Technologies with 'Buy' ratings and price targets of $138 and $181, respectively, implying upside of over 31% for Cameco and 13% for BWXT. The investment bank's confidence stems from growing demand for low-carbon electricity, with more than 30 countries pledging to triple nuclear capacity by 2050 and President Trump signing an executive order to quadruple U.S. capacity by that year. Cameco, the world's second-largest uranium miner with 15% of global output in 2025, holds long-term contracts for about 230 million pounds of uranium through 2030 and a stake in Westinghouse Electric, positioning it to secure higher prices through 2040. BWXT, the sole provider of naval nuclear reactors for U.S. submarines and aircraft carriers, was selected for the U.S. Army's $2.2 billion Janus program to build microreactors on military bases, with Jefferies expecting annual sales growth of 6%-7% and earnings growth of 13%-17% through 2030. Risks include uranium price volatility for Cameco and execution challenges for BWXT, particularly the aggressive timeline for the Janus reactor by September 2028.

Transit of commodity-carrying vessels through the Strait of Hormuz has fallen to an average of just 10 ships per day over the past 10 days, the lowest level since May, following retaliatory attacks on oil tankers by US and Iranian forces. Data from Kepler shows the 10-day moving average fell from over 15 ships on Friday and nearly 13 on Saturday, with only 2 ships passing on Saturday and 6 on Sunday, mostly using the Iranian side. US Central Command (CENTCOM) said it had struck three Iranian oil tankers, including one off Kharg Island, in response to attacks by the Islamic Revolutionary Guard Corps (IRGC). Iran retaliated by attacking three oil tankers and three US vessels. Marisk said the attacked ships were the Donyi, Stark, and Kylo, with Kylo sinking in the Gulf of Oman and the other two heavily damaged. This marks a major escalation in maritime conflict and blurs the line between military confrontation and commercial shipping. The UKMTO reported 27 missile attacks since July 6, and by Sunday only one VLCC and three bulk carriers entered the strait, with no VLCCs departing since Wednesday. One product tanker from Saudi Arabia had to turn back.

L3Harris Technologies has secured a $139 million contract modification to produce low-profile photonics masts, spares, and engineering support for new and in-service submarines. The work will be performed in Northampton, Massachusetts, and is expected to be completed by September 2030. The contract is fully funded at award with Navy funds from shipbuilding, procurement, and national sea-based deterrent programs, and the obligated funds will not expire at the end of the current fiscal year. The Naval Sea Systems Command is the contracting activity.

General Dynamics' NASSCO unit has won a $149.6 million U.S. Navy contract to maintain, modernize, and repair the USS Pinckney (DDG 91). The contract, awarded by the Naval Sea Systems Command, covers labor, equipment, testing, and other work for the ship's Fiscal 2026 Depot Modernization Period. Including options, the total value could reach $149.9 million. Work will be performed in San Diego, California, with completion expected by September 2028. The contract is fully funded at award, primarily through $135.8 million in Navy procurement funds, while $12.9 million in operations and maintenance funds will expire at the end of the current fiscal year.

At a press conference after the Cabinet meeting on the 4th, Minister of Land, Infrastructure, Transport and Tourism Yasuyuki Kaneko announced that the ministry has decided to support capital investment for Imabari Shipbuilding, its subsidiary Japan Marine United (JMU), and Namura Shipbuilding, aiming to double domestic shipbuilding capacity. This is the first round of government support for the revitalization of the shipbuilding industry, and over the next 10 years, a total of 600 billion yen will be invested by the public and private sectors combined. From the Ministry's shipbuilding revitalization fund, up to 213.1 billion yen will be provided to the three companies, with up to 113.8 billion yen in subsidies to Imabari Shipbuilding and its group company Tadotsu Shipbuilding, 49.4 billion yen to JMU, and 49.9 billion yen to Namura Shipbuilding and its group company Hakodate Dock. Through these capital investments, the plan is to increase the three companies' building capacity to 1.5 times their current level.

General Dynamics Missions Systems has been awarded a $194.14 million contract modification to provide technical and engineering support for the Fire Control Subsystem, which supports the Nuclear-Armed, Sea-Launched Cruise Missile Program. The work is expected to be completed by September 30, 2028. The award includes $135.30 million in Navy research, development, test, and evaluation funding, which will be obligated at the time of award, and no funds will expire at the end of the current fiscal year. Strategic Systems Programs is the contracting activity.

Tutor Perini Corporation is positioning the Indo-Pacific region as a key growth avenue, with more than $4.6 billion in bidding opportunities over the next 12 to 18 months and an additional $1 billion-plus identified beyond that period. The company, through its Guam-based subsidiary Black Construction, is evaluating projects including port and harbor improvements in Palau and Yap, fueling facilities at Wake Island, and the Polaris Point submarine pier at Naval Base Guam. In the second quarter of 2026, Tutor Perini booked $1.7 billion in new awards, helping backlog reach a near-record $19.9 billion, with the largest addition being a $652 million project to modernize power infrastructure at Naval Base Guam. Management continues to bid conservatively, prioritizing profitability over volume, and the company's shares have gained 21.2% in the past three months. Earnings estimates for 2026 and 2027 have been revised upward to $5.48 and $6.25 per share, respectively, and the stock holds a Zacks Rank #1 (Strong Buy).

Mitsubishi Heavy Industries has decided to acquire an industrial site on an artificial island in Shimonoseki, Yamaguchi Prefecture, for about 3 billion yen, it was learned on the 3rd. The move is aimed at expanding the shipbuilding business promoted by the Takahashi administration, and part of the production functions of its shipyard in the city will be transferred. The acquisition involves a portion of the artificial island called "Choshu Dejima," which is being developed by Shimonoseki City, covering an area of approximately 144,700 square meters. The transfer is expected to proceed after approval by the city council. Mitsubishi Heavy Industries currently produces ferries, car carriers, and special vessels such as cable-laying ships at its Shimonoseki Shipyard Eo Plant, and specific details of what will be transferred will be decided in the future.

GE Aerospace has won an order to supply 12 LM2500+G4 marine gas turbine engines for South Korea's next-generation destroyer program, known as KDDX. The engines will power six planned destroyers, with each vessel using two engines as part of a full electric propulsion system. Financial terms were not disclosed. This contract extends GE's relationship with the Republic of Korea Navy, which has already procured 163 marine gas turbines for 95 ships. Local partners Hanwha Aerospace and NRTEC will handle manufacturing and assembly in South Korea. The KDDX vessels will be the Korean Navy's first with stealth-integrated radar and will carry anti-aircraft and land-attack missiles. GE's Defense & Propulsion Technologies generated $11.2 billion in revenue in 2025, compared with $38.1 billion for Commercial Engines & Services.

The United States launched strikes on targets of Iran's Islamic Revolutionary Guard Corps (IRGC) inside Iran at 12:00 p.m. Eastern Time, according to U.S. Central Command (CENTCOM), following attempts to attack commercial ships in the Strait of Hormuz and U.S. personnel in the region. CENTCOM has not disclosed the number and locations of the targets hit, nor the munitions used. President Donald Trump said on Truth Social that the strikes were large and powerful, and were retaliation against Iran after it attempted to lay naval mines in the Strait of Hormuz and fired missiles at U.S. bases in Jordan. He warned that if Iran retaliates, the U.S. will escalate with heavier and more severe strikes. Later, Iran's Tasnim news agency reported that the Iranian military has begun decisive operations, and that U.S. bases and interests across the region will be targeted by Iranian missiles and drones. The situation makes a prolonged war more likely and could create political pressure ahead of the U.S. midterm elections in November. A Reuters/Ipsos poll showed Trump's approval rating at 33%, and only 36% of Americans approve of war with Iran. The strikes mark a new escalation in the conflict, after the U.S. and Iran resumed tit-for-tat attacks over the weekend for the first time in about a month. On Sunday, U.S. forces struck a rocket launch site on Iran's Larak Island, and Iran responded by firing missiles at U.S. bases in Jordan, but they were intercepted. The United Arab Emirates also said it intercepted Iranian drones over its waters. The Strait of Hormuz is the world's most important energy transit route; before the war, about one-fifth of global oil supply passed through it, according to the U.S. Energy Information Administration (EIA). The escalation increases risks to shipping and energy transport through the Strait, which could create volatility in global oil markets.

General Electric announced Tuesday it was awarded a not-to-exceed $2.875 billion U.S. Navy contract to provide logistics support for 17 F414 engine components used in F/A-18 E/F/G aircraft. The five-year performance-based logistics contract runs through August 2031, with no option periods. A total of $198.2 million in fiscal 2026 working capital funds will be committed at award, with $148.7 million obligated initially. Additional delivery orders will be funded with future Navy working capital funds as required. The contract was awarded by the Naval Supply Systems Command Weapon Systems Support.

Oil prices continued to rise today as investors assessed the risk of escalating conflict in the Middle East following military strikes between the U.S. and Iran, as well as an attack on a vessel in the Strait of Hormuz. West Texas Intermediate (WTI) crude for October delivery stood at $87.83 per barrel, up $2.07, or 2.41%, while Brent crude for November delivery was at $92.39 per barrel, up $1.90, or 2.10%. The United Kingdom Maritime Trade Operations (UKMTO) reported that a tanker was attacked by three unidentified objects while transiting the Strait of Hormuz on Monday, with no injuries or fatalities. Earlier, Iran struck two U.S. bases in Jordan in retaliation for a U.S. attack on Iran's Larak Island, which killed three people. The U.S. stated that Iran planned to launch rocket-propelled mines into the Strait of Hormuz, and Iran's president said he was ready to respond immediately if the U.S. returned to the interim agreement signed in June.

The United States and Iran engaged in fierce retaliatory strikes over the weekend, with US forces attacking two Iranian rocket launch sites on Larak Island in the Strait of Hormuz after discovering that the Islamic Revolutionary Guard Corps was preparing to launch mine-laden rockets into the strait, according to the US Central Command (CENTCOM). This attack marks the first official US strike on Iranian positions since late July, amid a six-month-long conflict that has disrupted shipping on a key global energy route. Iran retaliated by striking King Hussein and Al-Azraq air bases in Jordan with missiles and drones, causing significant damage. Meanwhile, the US Navy continues to blockade Iranian ports, and there are reports that another oil tanker was attacked with explosives in the Strait of Hormuz on Saturday, with no injuries or fatalities.