Stifel's recent research argues that a wave of selling in government services names has been outsized, driven in part by DOGE concerns and broader unease about evolving industry fundamentals. Within that context, the firm identifies smaller service firms and new entrants as having distinct advantages when it comes to responding to altered priorities at the U.S. government level.
According to Stifel, these companies - ranging from established government contractors to newer participants in defense technology supply chains - are better able to pivot and capture growth opportunities as procurement models change. The firm outlines specific examples and rationale for why select names may outperform peers given their strategies and recent corporate actions.
CACI International Inc.
Stifel retains a Buy rating on CACI International, pointing to the company’s deliberate bidding approach that has produced a high-quality backlog. The firm projects that this backlog can support mid-single-digit percentage revenue growth and improved margins over time, underpinned by what Stifel characterizes as a disciplined acquisition program.
Stifel notes that CACI’s acquisition strategy has been consistent and well executed, with expectations for continued M&A to broaden the company’s exposure to emerging defense-technology segments. The research team contends that CACI’s premium valuation is warranted by performance that outpaces peers, increasing participation in new defense growth vectors, and a track record of meaningful transactions that expand capabilities.
In a recent transaction consistent with that strategy, CACI completed the acquisition of ARKA Group L.P. in a deal valued at $2.6 billion. To help fund the purchase, CACI also issued an additional $500 million in senior notes.
Ondas Holdings Inc.
Stifel views Ondas Holdings as a potential integrator within a new U.S. drone ecosystem. The firm explains that the Department of War plans to acquire unmanned platforms in a manner that departs from the traditional, decades-long programs of record that have defined legacy procurement, a shift that can pose challenges for parts of the established defense industrial base.
Ondas is developing an operating platform intended to leverage access to capital and industry relationships to assemble an ecosystem that blends disruptive new entrants and foreign drone technology with scaled U.S. manufacturing. Stifel suggests that this type of positioning could be particularly valuable as procurement for unmanned systems evolves.
Recent corporate moves by Ondas include the acquisition of INDO Earth Moving, a business that received a $140 million military contract, and the formation of a joint venture in Germany focused on autonomous drone defense systems.
Stifel emphasizes that, in a shifting defense landscape, smaller service companies may have structural advantages in flexibility and speed of response compared with larger incumbents. The firm’s analysis highlights both traditional contractors adapting via M&A and newer platform-builders attempting to knit together technology ecosystems that align with the government’s changing procurement approach.
Investors evaluating the aerospace, defense, and government services sectors should weigh these strategic differences and recent corporate transactions when considering positions in companies such as those profiled by Stifel.