On Feb 21, 2014, we issued an updated research report on
Lockheed Martin Corp.
). Recently, the U.S. Department of Defense's (DoD) No. 1
contractor posted strong fourth quarter 2013 results with the top
and bottom line coming in above the Zacks Consensus Estimate.
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Although revenues declined year over year in the final quarter of
2013, earnings per share surged almost 21.4%. Lockheed Martin
delivered a positive earnings surprise in each of the last four
quarters, with an average beat of 22.6%. These results reflect
the company's strong operational performance.
Despite the uncertainty plaguing the industry, Lockheed Martin
ended 2013 with $82.6 billion of backlog. Moreover, with the
recent $1.1 trillion Omnibus spending bill, the company is
expected to see stability in 2014. The bill backed 68 of F-35
fighter jets over 2015 and 2016. Lockheed Martin's pricey F-35
program emerged largely unhurt and is expected to gain
significant traction in 2014 and 2015.
Lockheed Martin also received $333.5 million from the Omnibus
fund for the Air Force's Combat Rescue Helicopter program. The
program calls for Lockheed Martin to build 112 new search and
rescue helicopters under a joint venture with Sikorsky. The
company forecasts higher earnings for 2014 after registering
charges related to U.S. defense budget cuts and workforce
reduction in the final quarter of 2013.
On the international front, foreign orders accounted for 23% of
the total orders received and 17% of sales in 2013. This year
foreign sales are expected to rise to just under 20% of total
Again, Lockheed continues to be a strong cash generator with its
operating cash flow reaching approximately $4.5 billion in 2013
(up sharply from $1.6 billion a year ago). Fourth quarter 2013
free cash flow was $593 million despite the $750 million
voluntary pension contribution.
The Street reacted favorably to Lockheed's solid earnings release
and the Omnibus bill. Over the past 30 days, 11 of the 15
estimates were revised upwards for 2014. This led to a
significant increase of 24 cents in the Zacks Consensus Estimate
for 2014, which now stands at $10.57 per share. The company
forecasts earnings per share in the range of $10.25 to $10.55 for
Despite the recent Omnibus bill, which came as a sign of relief
for the defense companies like Lockheed Martin, the sector will
still continue to face headwinds as Pentagon's spending moderates
from historical levels. Lockheed Martin expects revenue to be in
the range of $44.0 billion to $45.0 billion (compared with $45.4
billion in 2013). Hence, the top line forecast is certainly a
Lockheed Martin currently carries a Zacks Rank #2 (Buy). Other
defense stocks also worth considering are
Northrop Grumman Corp.
Huntington Ingalls Industries, Inc.
). While Northrop sports a Zacks Rank #1 (Strong Buy), Embraer
and Huntington carry a Zacks Rank #2 (Buy).