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Investing.com -- Shares of Qinetiq (LON:QQ) Group plc dropped over 10% on Tuesday after the defense and technology company said that its short-term order intake in the UK was weaker than anticipated, citing challenges in the fiscal environment.
In a trading update covering the third quarter, the company reported stable progress in other key areas but acknowledged some headwinds in its home market.
“Despite known question marks over near-term defence budget outlook in UK (strategic defence review expected around Spring) and DOGE initiatives in the US, this is more than priced in for QQ shares in our view, trading on a just 8.1x for 2026E,” said analysts at Barclays (LON:BARC) in a note.
QinetiQ stated that its UK Intelligence business, in particular, faced pressures, prompting the company to resize parts of its operations in response.
The UK Defence division, which benefits from longer-term contracts, remained resilient, helping to offset some of the softness in near-term orders.
However, the broader fiscal environment appears to have weighed on order flow, reflecting ongoing constraints in government spending.
QinetiQ reported continued revenue growth in EMEA Services, underpinned by strong medium-term visibility and a robust pipeline of major programs.
While the Global Solutions segment demonstrated a stable overall performance, the US contracting environment presented challenges.
QinetiQ reported year-to-date order intake of £1.3 billion, consistent with the prior-year period.
The company reaffirmed its full-year guidance, anticipating high single-digit organic revenue growth while maintaining stable underlying margins.
The company also reiterated its mid-term objectives of achieving £2.4 billion in organic revenue and a 12% margin by 2027.
The company's share buyback program remains on schedule, with a £100 million program slated for completion in early February, followed by an additional £50 million program.
Barclays has updated its forecasts to reflect the completion of the £50 million share buyback in June 2025, rather than the previously anticipated end of March.
This adjustment results in about a 4% reduction in FY25 EPS estimates and about a 2% reduction in FY26 EPS.
Despite these revisions, the price target remains unchanged at 530p, as the lower EPS estimates are offset by a 6% increase in FCF forecasts.