Lockheed Martin Corporation
), the defense industry goliath, exited the second quarter of 2012
on a strong note. Lockheed Martin reported strong top cum bottom
line numbers beating past the market apprehension. The company
posted second-quarter 2012 operating earnings of $2.38 per share,
beating the Zacks Consensus Estimate of $1.92 and the year-ago
quarterly earnings of $2.16.
Lockheed Martin also raised its full-year 2012 earnings guidance to
a range of $7.90 - $8.10 from its prior range of $7.70 - $7.90, on
revenues in the range of $45 billion to $46 billion. The market
reaction was however mixed for the ongoing quarter and full-year
2012 as judged from the response of analysts covering Lockheed
Highlights from the Quarter
Lockheed Martin on the revenue front reported quarterly net sales
of $11.9 billion, beating the Zacks Consensus Estimate of $11.3
billion by $616 million. Also, the company superseded the year-ago
quarterly revenue of $11.5 billion by $378 million.
The upside in sales came from all the segments barring the
Information Systems & Global Solutions segment.
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Earnings from continuing operations for the second quarter of 2012
were $781 million versus $748 million a year ago. Overall, Lockheed
Martin's quarterly net earnings rose to $781 million from $742
million in the year-ago period.
Lockheed Martin finished the reported quarter with $75.5 billion of
backlog. Of this $26.9 billion belonged to the Aeronautics segment
and $24.6 billion to the Electronic Systems segment. The rest is
made up of $15.7 billion for the Space Systems segment and $8.3
billion for Information Systems & Global Solutions.
(Read our full coverage on this earnings report:
Lockheed Beats, Raises EPS Forecast
Agreement - Estimate Revisions
Over the past month, estimates for Lockheed Martin for the third
quarter of 2012 have witnessed a distinct downward trend with 16
(out of 19 analysts) slashing their estimates with no upward
On the other hand estimates for full-year 2012 have witnessed a
totally different trend where 18 (out of 20 analysts) raised their
estimates with no downward revisions. Lockheed Martin's status as
the largest U.S. defense contractor seems to be the driving factor
for the positive estimate revisions.
Such a mixed sentiment clearly depicts the analysts' worry about a
shrinking order backlog base. Lockheed's order backlog fell to
$75.5 billion at the end of the first half of 2012 from $80.7
billion at year-end 2011.
Magnitude - Consensus Estimate Trend
Lockheed Martin's second-quarter beat, however, failed to allay
market trepidations about potential cutbacks for its large programs
in the face of downward defense budget trends and the incoming
effect of sequestration. Any future concerns about the U.S. federal
deficit may have an adverse effect on defense spending, especially
on Lockheed Martin's high-cost platform programs. Also, Lockheed
carries a sizeable pension liability. The company's operating
earnings and future cash flows can be affected by higher pension
costs in lower interest rate environments. This has influenced
estimate revisions for the near term. Looking at estimate revisions
for the ongoing quarter, the consensus has fallen by 11 cents over
the past month. Currently, the quarterly Zacks Estimate stands at
However, Lockheed 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. This strong position of Lockheed is reflected in the
full-year 2012 Zacks Consensus Estimate which climbed from $7.90 to
$8.08 over the last 30 days. The long-term bullishness arises from
market expectations riding on Lockheed programs like the C-130
Hercules & C-5 Galaxy transport aircrafts, F-16 Fighting Falcon
multi-role jet, MH-60 Helicopters, the Advanced Extremely High
Frequency (AEHF) & the Global Positioning Satellite III (GPS
III) system satellites, the Littoral Combat Ship (LCS), the Aegis
Weapons System for mobile and sea-based missile defense and the
Terminal High Altitude Area Defense (THAAD) system.
We currently maintain our long-term Outperform recommendation on
Lockheed Martin based on revenue growth, improved earnings
guidance, incremental dividend payout and stable order backlog. The
company's second quarter adjusted earnings surpassed the Zacks
Consensus Estimate and improved year over year, primarily on strong
numbers from Aeronautics, Electronic Systems and Space Systems
segments. Going forward we believe the current discounted valuation
of the defense behemoth versus its peers like
The Boeing Company
Huntington Ingalls Industries, Inc.
) is unwarranted given its leveraged presence in the Army, Air
Force, Navy and IT programs. Also, shareholder return will continue
to be shored up by the company's focus on debt repayment, its
ongoing share repurchase program and the incremental dividend.
Thus, Lockheed Martin carries a Zacks #2 Rank implying a short-term
Buy rating for the next 1-3 months.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago
that earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking discovery
into two of the most celebrating stock rating systems in use today.
The Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months). These
"Earnings Estimate Scorecard" articles help analyze the important
aspects of estimate revisions for each stock after their quarterly
earnings announcements. Learn more about earnings estimates and our
proven stock ratings at