Axon vs. Teledyne: Which Defense & Security Stock Should You Bet On?

Axon Enterprise, Inc. AXON and Teledyne Technologies Incorporated TDY are two familiar names operating in the aerospace and defense equipment industry. As rivals, both companies are engaged in manufacturing highly engineered public security and digital imaging solutions across the global markets.

Both companies have been enjoying significant growth opportunities in the public safety and surveillance industries on account of growing instances of terrorism and criminal activities across the world. Let’s take a closer look at their fundamentals, growth prospects and challenges.

The Case for Axon

The strongest driver of Axon’s business at the moment is the persistent strength in its Connected Devices segment. Strong demand for its next-generation TASER 10 products, counter-drone equipment and advanced body-worn camera, Axon Body 4, supports the segment’s growth. With upgraded features such as a bi-directional communications facility and a point-of-view camera module option, Axon Body 4 is generating significant demand. Segmental revenues surged 34.6% year over year in the second quarter of 2026, following an increase of 33% in the first quarter.

In the second quarter, revenues from the company’s TASER product line increased 20.9% year over year, driven by TASER 10, while those from the Platform Solutions product line soared 122.6%, supported by counter-drone, virtual reality and fleet. Also, revenues from Personal Sensors grew 2.8%, led by Axon Body 4.

The company is also witnessing solid momentum in its Software & Services segment. After witnessing year-over-year 35% growth in revenues in the first quarter, revenues from the segment soared 36.2% in the second quarter. Higher adoption of its premium software offerings, including Axon Fusus, the AI Era Plan and Axon 911, and solid demand for premium add-on features are driving the segment’s growth.

The company is also strengthening its position in the counter-drone space with the growing capabilities of its Dedrone offerings and Artificial Intelligence (AI)-powered command-and-control platform. After witnessing year-over-year growth of 300% in the first quarter, revenues from the Dedrone platform surpassed $100 million in the second quarter.

On the flip side, escalating costs and expenses are a concern for Axon’s margins and profitability. In second-quarter 2026, its cost of sales and SG&A expenses increased 35.2% and 20.1%, respectively, year over year. Adjusted gross margin declined 40 basis points year over year to 62.9%. Axon expects third-quarter adjusted EBITDA margin to absorb higher memory costs without the benefit of tariff refunds before margins scale in the fourth quarter.

Also, Axon had $1.75 billion of senior notes outstanding at the end of the second quarter of 2026, while cash equivalents and short-term investments were $685 million and net debt was about $1.1 billion.

The Case for Teledyne

Teledyne is witnessing strong demand from the defense sector globally, driven by rising regional defense spending. The company is benefiting from robust demand for technologies like infrared imaging, machine vision, sensors, surveillance equipment and autonomous-system electronics.

A favorable macroeconomic environment and the current U.S. administration’s inclination toward increased defense spending, with the nation being the largest weapons exporter, have been aiding growth. Teledyne’s engineered systems for space applications and broad range of end-to-end undersea interconnect solutions for naval defense should significantly bolster revenues.

A steady rebound in commercial air travel continues to serve as a key growth driver for Teledyne, which supplies onboard avionics systems and ground-based applications for commercial aircraft. Per the International Air Transport Association’s (IATA) June 2026 outlook, the demand for air travel is expected to rise 2.1% in 2026, measured in Revenue Passenger Kilometers, leading to a strong aftermarket for components.

During the second quarter of 2026, Teledyne recorded higher commercial aerospace aftermarket sales, while Original Equipment Manufacturer orders for 2026 deliveries also remained strong. Exiting the second quarter, Teledyne had a backlog of around $5 billion and recorded a book-to-bill of 1.23. Sales from the Aerospace and Defense Electronics segment rose 8.2% year over year, fueled by higher sales of defense electronics and aerospace electronics.

The company continues to strengthen its portfolio with strategic acquisitions. In January 2026, Teledyne acquired DD-Scientific Holdings Limited and its subsidiary DD-Scientific Limited. The acquisition of DD-Scientific fits well with Teledyne’s long-term strategy of adding differentiated sensing and electronics businesses with strong technology content.

However, TDY experienced supply-chain challenges, including increased lead times, as well as cost inflation for parts and components, logistics and labor due to availability constraints and high demand in the recent past. This might continue to delay the company’s ability to convert backlog to revenues and negatively impact its profit margin.

Price Performance

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In the year-to-date period, Axon shares have risen 5.2%, while Teledyne stock has gained 22.4%.

The Zacks Consensus Estimate for AXON & TDY

The Zacks Consensus Estimate for AXON’s 2026 sales and earnings per share (EPS) implies year-over-year growth of 33.4% and 15%, respectively. However, the EPS estimates for 2026 and 2027 have decreased over the past 60 days.

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The Zacks Consensus Estimate for TDY’s 2026 sales implies growth of 7.4% year over year, while the EPS estimate indicates an increase of 12.3%. TDY’s EPS estimates have been trending northward for both 2026 and 2027 over the past 60 days.

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Teledyne’s Valuation More Attractive Than Axon

Teledyne is trading at a forward 12-month price-to-earnings ratio of 23.94X, while Axon’s forward earnings multiple sits much higher at 62.73X.

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Conclusion

Axon’s strong momentum across operational segments and growing presence in the counter-drone space have been dented by rising expenses and a high debt level, which might affect its margins and performance. Also, AXON’s expensive valuation warrants a cautious approach for existing investors.

In contrast, Teledyne’s growth prospects remain solid, backed by enhanced U.S. defense funding and solid projections for commercial air travel. Additionally, TDY’s attractive valuation is more appealing and its upwardly revised earnings estimates instill confidence. Given these factors, TDY seems to be a better pick for investors than AXON currently. While TDY currently carries a Zacks Rank #2 (Buy), AXON has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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