Defense Stocks: 2 to Buy, 1 to Avoid in a Shutdown

Geopolitical concerns have made defense stocks attractive in the past year. However, the U.S. government shutdown has turned that sentiment in a bearish direction. The reason is simple. Defense contractors are generally not paid during shutdowns. In fact, several analysts have forecast that prolonged shutdowns can change contract timing.

That means, depending on contractual language, many projects that these companies have are paused. To be fair, this affects immediate revenue more than future guidance. If you’re a buy-and-hold investor, this only becomes a concern if these contracts get cut. We’re far from that occurring.

However, if you’re a momentum trader, you’ll want to pick your stocks carefully. There are several defense contractors that have business models that will allow them to manage through a lengthy shutdown. Others may have a more difficult time. 

In this article, I analyze two defense stocks that look like good investments during a shutdown and one that investors may want to fade for now. 

Leidos: Mission-Critical Defense Contracts Provide Stability

Leidos Inc. (NYSE: LDOS) is a global science and technology solutions provider headquartered in Reston, Virginia. The company’s portfolio includes system integration, cybersecurity, data analytics, and mission support services for both public and private sector customers. 

First, the reality check. Although the company has some private sector partnerships, they only account for about 13% of its total revenue. The U.S. government makes up the vast majority of Leidos’ customer base. 

However, that business is dominated by multiyear, mission-critical contracts in areas like defense IT, cyber operations, and intelligence analytics. The nature of these contracts provides the company with revenue continuity even if there are delays in new budgeting. Plus, Leidos has a 1.3x book‑to‑bill ratio and 60–90 days of liquidity to stabilize performance, and provides the flexibility to manage delayed disbursements without slowing operations.

LDOS stock is down about 1.3% in the five trading days ending October 15. It’s also trading near its consensus price target and 52-week high. A pullback seems natural.

However, the stock is up about 28% year-to-date, which is consistent with the stock’s five-year average total return. At just over 17x earnings, it’s a little expensive to its historic average. But analysts are raising their price targets ahead of the company’s upcoming earnings report. It’s worth noting that there hasn’t been much analyst activity since the shutdown began. 

Parsons: Benefiting from Mission‑Essential Defense Work

Parsons Corp. (NYSE: PSN) presents a similar investment case as Leidos. The company’s defense business has heavy exposure to sectors such as cyberdefense, missile warning systems, and secure infrastructure, all of which are explicitly exempt from shutdown stoppages.

In the company’s Q2 earnings report, Parsons cited the following benchmarks:

• An $8.9 billion backlog; 70% of which is already funded; the company’s highest level since it’s initial public offering (IPO) in 2019. 
• Approximately $11 billion in contract wins that weren’t booked into its backlog.
• A quarterly and trailing 12-month book-to-bill ratio of 1x.
• Three contract wins of over $100 million. 
• A $55 billion pipeline, including 114 contracts worth at least $100 million and 14 contracts worth over $500 million.

Parsons is one of two companies vying to become the project manager of a multi-billion-dollar effort to overhaul air traffic control in the United States. That contract, which has a preliminary value of around $12.5 billion, is expected to be awarded by the end of October. However, as the company’s most recent earnings report shows, the company’s immediate fortunes aren’t dependent on this contract. .

PSN stock is down about 8% in 2025, but it’s up nearly 14% in the three months ending October 15. That correlates with analysts’ expectations for about 14.5% earnings growth in the next 12 months. 

At around $84 as of this writing, the stock is in the middle of its 52-week range and about 9% below its consensus price target. And with a forward price-to-earnings (P/E) ratio of around 23x, the stock is undervalued to its historical average. 

Booz Allen Hamilton: Advisory Exposure Adds Downside Pressure

Unlike Leidos and Parsons, which have locked-in (and in many cases funded) defense contracts, Booz Allen Hamilton Holding Corp. (NYSE: BAH) carries a risk of revenue disruption to its fee-for-service model. Much of the company’s contracted revenue relies on daily government operations and enacted appropriations. These efforts tend to freeze during government shutdowns.

This may not impact the company’s revenue if the shutdown ends before November. For its part, the company still anticipates $13.5 billion in revenue by 2028. That compares to the approximately $11.5 billion Booz Allen Hamilton has recorded in its most recent trailing twelve-month (TTM) period.  

However, it’s anyone’s guess as to whether the government will reopen before the company reports earnings on October 24. Fo now, BAH stock is already down 23% in 2025, and a prolonged shutdown will be a headwind on the stock. 

If you’re a momentum trader, this could be an opportunity. Of the three stocks on this list, BAH stock is trading near its 52-week low and nearly 35% below the analysts’ consensus price target. It also has a forward P/E around 14x, which is a discount to its historical average. 

The options chain for BAH stock shows bullish sentiment particularly around the $100 and $115 strike prices. If you believe the shutdown may be resolved shortly, this may be a bullish trade setup.