Can Lockheed (LMT) Keep the Earnings Streak Alive? - Analyst Blog


Defense contractor behemoth Lockheed Martin Corp. ( LMT ) 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: The Earnings 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 Earnings?

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. ( NOC ), with Earnings ESP of +2.21% and a Zacks Rank #2 (Buy).

General Dynamics Corp. ( GD ), with Earnings ESP of +1.80% and a Zacks Rank #3 (Hold).

Engility Holdings, Inc. ( EGL ), with Earnings ESP of +7.04% and a Zacks Rank #3 (Hold).

ENGILITY HLDGS (EGL): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EGL , GD , LMT , NOC

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