Defence darlings Austal, Electro Optic have two very different Mondays after earnings

You’ve read the headline: Two of the most popular defence stocks on the ASX of late, gov’t-backed shipbuilder Austal Ltd (ASX:ASB) and Electro Optic Systems (ASX:EOS), have both reported earnings on Monday, Week 9.

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But the reactions between the two Aussie stocks couldn’t be more different – Austal, in particular, is having a difficult-to-understand day.

Austal has a Zip Co moment

For anybody who was paying attention last week, you might find the reaction to Austal Ltd’s earnings on Monday to be quite unusual, and not at all unlike what we saw with Zip Co (ASX:ZIP) late last week.

In that example, the fintech reported a half-yearly with fairly solid numbers – profits were up, revenue was up, bad debts increased by a manageable amount, and the company even revealed it’s taking off in the U.S.

And yet, the company sank -40% intraweek as earnings expectations were missed; some investors questioned whether Zip is as valuable with a U.S.-heavy growth engine, and then stop losses and panic presumably did their part, too.

But on the whole, Zip posted a solid earnings result, and people seemed to respond as if the company was going bankrupt. And you could argue we’re seeing the same thing over on Austal’s share price chart Monday.

As at 2pm AEDT and using CBOE live pricing, Austal had dropped to A$5.61/sh. On Friday, the stock was worth $6.30/sh.

This surprise Monday drop comes even as Austal this morning highlighted $1.1B in revenue; a $17.7B order book of works yet to be delivered – some 76 ships under construction or scheduled for construction – with 22 of those ships ordered in just the first half of FY26.

That comes after Austal was also declared a strategic shipbuilder by Canberra in the first half, which culminated in the delivery of a $4B Australian navy contract.

That $4B contract ended up seeing the company shake off losses it incurred the week prior when the company revealed it had double-counted an item on its books, ultimately meaning earnings estimates were downgraded.

And it’s that counting error which appears to be why Austal’s price has dropped – because an analyst from investment bank Citi, following Austal’s earnings call, has expressed concerns over the numbers Austal reported.

In short, that analyst more or less inferred there may be further errors in the results ASB is presenting as its half-year results for FY26, and it appears it has set a cat among the chickens, especially given the reputational bedrock of ASB’s in-house accounting team remains freshly bruised by the errors flagged back on February 13.

A $4B contract from Canberra over 12 years, clearly, isn’t enough to assuage concerns. And the fact that Deloitte auditors had concerns about EOS’s ability to achieve contract relief shook the tree a good amount, too.

EOS investors shake off concerns

Electro Optic Systems investors, meanwhile, reacted the opposite way; the former released its full year 2025 earnings on Monday, and the stock was strongly rewarded – climbing seventeen percent higher (+17%) as at 2pm AEDT.

That comes even as revenue from ordinary activities dropped nearly -50% vs pcp; no dividend payout; EOS made a loss of -$24.4M in 2025 – larger than its loss of $11M in CY24 – and saw $53M cash flow out the door in financing that came with the repayment of debt to Washington H. Soul Pattison.

And yet, the stock jumps +17% – and it doesn’t even have an A$4B contract to point to. That move for Electro Optic on Monday, in turn, comes as investors shrug off recent concerns tied to a short seller’s research report from Grizzly Research, which ultimately alleged the company was dishonest about the material potential of an $80M contract inked with a Korean company.

That helped knock EOS (along with a string of other catalysts, including rumours the company might be ditching Oz) from its $11/sh valuation back in January.

For its part, Grizzly confidently stated that the formerly undisclosed Korean partner, a company called Goldrone, couldn’t pay the $80 million, and EOS knew that. In a recent reply to the short seller’s report, Electro Optic stated Grizzly was making “misleading, manipulatory and pejorative conclusions.”

Talk about a spat. At any rate, investors have been more sympathetic to EOS’s trials and tribulations than those of ASB’s. That’s likely because EOS has had a lot more buzz – this is the company that effectively stole DroneShield’s spotlight – and it also has the sex appeal of offering things like laser weapons.

(A shipbuilder is, I hate to say it, somewhat boring in comparison; EOS also has more purchase to throw the idea of artificial intelligence around.) With the +17% jump on Monday included, ASB’s 1Y returns are back to a lofty value: up +600% YoY.

Notably, the word “Grizzly” didn’t appear on any of the 130-plus pages that comprised EOS’s half-year on Monday.

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