Defense contractor behemoth
Lockheed Martin Corp.
) is scheduled to report its third quarter 2013 earnings before
the opening bell on Oct 22, 2013. Last quarter, Lockheed beat
expectations with an earnings surprise of 19.5%. We expect the
trend to continue in the third quarter as well.
Why a Likely Positive Surprise?
Our proven model shows that the aerospace and defense major
Lockheed is likely to beat earnings because it has the right
combination of two key ingredients.
Positive Zacks ESP:
(Expected Surprise Prediction), which represents the difference
between the Most Accurate estimate and the Zacks Consensus
Estimate, is +2.21%. This is a meaningful and leading indicator
of a likely positive earnings surprise for the shares.
Zacks Rank #1 (Strong Buy):
Note that stocks with a Zacks Rank #1, 2 and 3 have a
significantly higher chance of beating earnings estimates. We
caution against stocks with Zacks Ranks #4 and 5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revision.
The combination of the defense major's Zacks Rank #1 and an ESP
of +2.21% makes us confident of an earnings beat this quarter.
What is Driving the Better than Expected
Lockheed Martin is the largest U.S. defense contractor with a
platform-centric focus that guarantees a steady inflow of
follow-on orders from a leveraged presence in the Army, Air
Force, Navy and IT programs.
As much as 82% of Lockheed Martin's sales come from the U.S.
government. Loaded with contracts, the company is building three
models of the very expensive and controversial F-35 for the U.S.
military and eight international partner countries including
Britain, Australia, Canada, Norway, Turkey, Italy, Denmark and
the Netherlands. Israel and Japan have also ordered the fighter
jet. Lockheed Martin's F-35 program accounts for approximately
15% of the company's total revenues. The sales contribution from
the F-35 is expected to go up in the coming years.
Sequestration and spending cuts were expected to adversely impact
the performance of the defense behemoths that explicitly provide
products and services to these defense establishments. However,
Lockheed seems to have tided over the situation prudently,
winning big ticket contracts from the U.S. defense authority.
Recently, Lockheed received a sizeable contract from the U.S.
Army valued at potentially as much as $4.1 billion to provide
communications equipment and services.
Last month, Lockheed Martin increased its quarterly dividend to
$1.33 per share and authorized the purchase of up to an
additional $3 billion of its common stock under the share
repurchase program. This move reflects the company's strong
performance and program execution capability.
Other Stocks to Consider
Lockheed Martin Corp. is not the only company looking up this
earnings season. We also see likely earnings beats coming from
these 3 stocks in the industry:
Northrop Grumman Corp.
), with Earnings ESP of +2.21% and a Zacks Rank #2 (Buy).
General Dynamics Corp.
), with Earnings ESP of +1.80% and a Zacks Rank #3 (Hold).
Engility Holdings, Inc.
), with Earnings ESP of +7.04% and a Zacks Rank #3 (Hold).
ENGILITY HLDGS (EGL): Free Stock Analysis
GENL DYNAMICS (GD): Free Stock Analysis
LOCKHEED MARTIN (LMT): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
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