The defense equipment industry remains resilient, supported by rising defense spending and strategic mergers and acquisitions that improve operational scale, diversify product offerings and increase market presence, even as supply-chain challenges persist.
The proposed increase in the U.S. defense budget to $1.5 trillion in 2027, signals long-term support for defense-related companies. The ongoing war in the Middle East between Iran and the U.S.-Israel joint force may act as a catalyst for these companies in the near-term.
The Zacks-defined Defense Equipment industry is currently in the top 38% of the Zacks Industry Rank. Since the Defense Equipment industry is ranked in the top half of the Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
At this stage, we have narrowed our search to three defense equipment stocks with a top Zacks Rank that have provided double-digit returns in the past three months. The companies are: Loar Holdings Inc. LOAR, Mercury Systems Inc. MRCY and Outdoor Holding Co. POWW. Each of our picks currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our three picks in the past three months.
Image Source: Zacks Investment Research
Loar Holdings Inc.
Loar Holdings is a diversified manufacturer and supplier of niche aerospace and defense components for aircraft and aerospace and defense systems. LOAR designs, manufactures, and sells aerospace and defense components for aircraft, and aerospace and defense systems in the United States and internationally. LOAR primarily serves commercial, business jet, general aviation and defense markets.
Loar Holdings has an expected revenue and earnings growth rate of 30.5% and 25%, respectively, for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 64.6% in the last 60 days.
Mercury Systems Inc.
Mercury Systems benefits from deep-rooted partnerships with the U.S. Department of Defense and prime contractors, creating a durable competitive moat. These relationships span decades and are built on proven performance delivering mission-critical systems for naval, airborne, and ground platforms.
MRCY’s trusted supplier status for classified programs ensures continued engagement on next-generation defense initiatives. MRCY’s alignment with national security priorities—particularly in electronic warfare, radar systems, and C4ISR applications—positions it favorably for sustained contract awards.
MRCY benefits from record bookings, a record backlog approaching $1.6 billion, improving adjusted EBITDA and stronger revenue visibility, supporting sustained growth. Its focus on operational efficiency, proprietary technology and higher-margin integrated solutions supports margin expansion.
Mercury Systems has an expected revenue and earnings growth rate of 9.4% and 56.6%, respectively, for the current year (ending June 2027). The Zacks Consensus Estimate for the current year’s earnings has improved 0.7% in the last seven days.
Outdoor Holding Co.
Outdoor Holding is engaged in online marketplace business serving the firearms and shooting sports industries and a vertically integrated producer of ammunition and fire components.
POWW owns and operates the GunBroker e-commerce marketplace, an auction site that supports the lawful sale of firearms, ammunition, and hunting/shooting accessories. POWW also offers a state and federal compliant solution that connects buyers with sellers.
Outdoor Holding has an expected revenue and earnings growth rate of 5.8% and -150%, respectively, for the current year (ending March 2027). The Zacks Consensus Estimate for the current year’s earnings has improved more than 100% in the last 30 days.
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Mercury Systems Inc (MRCY): Free Stock Analysis Report
Outdoor Holding Company (POWW): Free Stock Analysis Report
Loar Holdings Inc. (LOAR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).