We have maintained our long-term Neutral recommendation on the
Lockheed Marin Corp
) on Sep 5, 2013.
Why the Reiteration?
Lockheed Martin is the largest defense contractor in the world.
The company's customer base includes the U.S. government, foreign
governments and other commercial buyers.
The company delivered better-than-expected second quarter
earnings, which surged almost 11% from the year-ago profit level.
The upcast in earnings was mainly attributable to strong
operational performance. This drove the management to raise its
full-year EPS guidance to $9.20-9.50 from $8.80-9.10.
Going forward, we believe Lockheed Martin has significant upside
potential based on the Obama administration's focus on
Intelligence Surveillance Reconnaissance (ISR), unmanned systems,
force protection, cyber security and missile defense. It already
sits on an order backlog of approximately $75.1 billion at the
end of the second quarter.
The ongoing Syrian unrest is expected to bring additional
revenues for the company. In case of a U.S. led intervention, the
U.S. forces are likely to use Lockheed Martin's Joint
Air-to-Surface Standoff Missile, and the Joint Standoff Weapon
), besides the use of cruise missiles to counter Syria's 4th
On the flip side, U.S. defense budget cutbacks keep us on the
sidelines. A large percentage of its business comes from the U.S.
government. So cuts in defense spending could limit the results
of its operating segments.
Lockheed Martin has factored sequestration in its 2013 sales
guidance. Management now expects revenues to be at the low end of
its previous $44.5-46.0 billion projection as it expects an $825
million hit from sequestration.
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Other Stocks to Consider
Lockheed Martin presently retains a short-term Zacks Rank #2
(Buy). Other favorable names in the defense space include
Northrop Grumman Corp.
Alliant Techsystems Inc.
). While Alliant Techsystems carries a Zacks Rank #1 (Strong
Buy), Northrop holds a Zacks Rank #2 (Buy).