President Trump’s push to enhance the military is creating opportunities for defense contractors.
A provision in the One Big Beautiful Bill Act, signed in July, earmarked over $150 billion to invest in defense initiatives like AI systems, missile defense, and cybersecurity. Companies like CACI (CACI), Booz Allen (BAH), and ViaSat (VSAT) could capitalize on the boost.
CACI has quickly become a Street favorite for defense stocks. Goldman Sachs analyst Noah Poponak recently issued a double upgrade on its shares, boosting its rating to Buy and raising its price target to $544 from $407. He cited the company’s “pivot to advanced technologies,” expecting it to “grow faster than peers over the medium-term.”
CACI’s strength lies in its close relationship with the Department of Defense, which accounts for three-quarters of its revenue. Federal civilian agencies contribute another 20%, while commercial customers make up an estimated 4%.
According to William Blair analyst Louie DiPalma, CACI’s proprietary counter-drone systems set it apart from competitors like Booz Allen.
“We estimate that 26% of CACI’s revenue comes from counter-drone solutions, which include both services and hardware,” DiPalma told Yahoo Finance. “We think CACI shares are undervalued, and investors will, over the next year, begin to give the stock more credit as a drone stock, and the stock price will increase.”
Shares of CACI are up 21% year to date. In its most recent quarter, revenue grew 13% year over year to $2.3 billion, topping estimates of $2.29 billion. Adjusted earnings per share surged 27% to $8.40, beating consensus estimates of $6.54, according to Bloomberg data.
Meanwhile, Booz Allen, one of America’s oldest defense consulting firms, has had a rocky stretch. Its shares have slipped 15% year to date and are down nearly 28% in the past 12 months.
Earlier this year, the DoD signaled it would scale back some consulting contracts, eventually canceling 234 deals. Booz Allen had 97 of its agreements nixed, compared to CACI’s four, noted Poponak.
But sentiment is shifting, with DiPalma forecasting Booz Allen as a comeback play. In a research note, he pointed to solid June-quarter contract awards and renewed interest in the company’s core offering of AI, cybersecurity, software development, and data analytics.
“Booz Allen historically has proven adept at navigating the political landscape,” DiPalma wrote. He expects more than 20% upside for the stock over the next year as the new administration prioritizes its expertise.
And with Silicon Valley companies reportedly knocking on Booz Allen’s door for partnerships, the firm could reassert itself as a key defense technology player, per DiPalma.
In its latest earnings result, Booz Allen’s revenue dipped 0.6% year over year to $2.9 billion, versus the expected $2.94 billion. Adjusted EPS rose 7.2% to $1.48, beating consensus estimates of $1.46.
ViaSat is another defense-adjacent company drawing renewed attention. Shares have shot up drastically in recent months, but analysts say there’s more upside ahead.
A potential catalyst is management considering an IPO or spinout of its defense tech business, according to William Blair. The firm noted that ViaSat also expects to receive $568 million in cash from a spectrum agreement with satellite company Ligado.
Free cash flow is projected to turn positive in the second half of the year, giving investors additional confidence. The firm upgraded ViaSat to Outperform with a price rating of $16.58.
“We believe investors will begin to value ViaSat’s defense tech business as worth greater than $7 billion,” DiPalma noted. “We think there is greater than 100% upside to ViaSat shares over the next year.”
ViaSat’s stock has soared over 200% year to date, and is up nearly 46% in the past 12 months.
For the latest quarter, ViaSat’s revenue increased 4% year over year to $1.17 billion, beating consensus estimates of $1.13 billion. Its net loss widened to $56 million, compared to $33 million from a year ago.
Francisco Velasquez is a Reporter at Yahoo Finance. He can be reached on LinkedIn and X, or via email at francisco.velasquez@yahooinc.com.
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