Aerospace Defense Stocks Coming in Hot this Earnings Season
It’s earnings season and quarterly reports are flying in overhead. A few names to note – Boeing (BA), Northrop Grumman (NOC) and Lockheed Martin (LMT), are all aerospace defense companies which reported earnings that beat out Wall Street’s expectations. We turn to TipRanks for some data analysis and analyst commentary.
Boeing is recuperating from some rough times. In March one of its latest aircraft (a 737 MAX 8) went down in Ethiopia, killing all aboard. Naturally, investors expected a negative earnings call for Boeing’s first quarter. Commercial aircraft are only part of Boeing’s portfolio; defense projects such as the F-15, the Navy’s Super Hornet, and of course, Air Force One, have helped support the stock.
After the earnings call, five-star Cowen analyst Cai von Rumohr (Track Record & Ratings) called the report “better than feared,” and reiterated an Outperform rating for the stock with a price target of $460.
“Investors may be neutral / positive to Q1's solid ops (esp. 787) & free cash flow despite the 737 slip; but given unexpected guide suspension, call focus will be on MAX recovery issues - 737 rate plan, supply chain, and cash flow outlook,” Rumohr said.
BA reported EPS of $3.16, which was in line with the Street’s consensus and topped Rumohr’s $2.75 prediction. Revenue of $22.9 billion is down two percent, but was on track as “better than expected” for satellites and weapons. Global services are up 17% year over year, which the analyst mentions has much to do with the acquisition of KLX Aerospace solutions. Most impressive is the free cash flow reported at $2.29 billion, which nearly doubles his prediction of $1.2 billion.
BA has the largest market share out of the stocks in this article, with $213.98 billion and a yearly gain of nearly 16%. The stock is considered a moderate buy according to TipRanks, with 14 buy ratings, 7 hold, and 2 sell. The consensus price target of $437.25 shows about 15% upside.
Northrop is best known for its 1997 Stealth Bomber (Northrop Grumman B-2 Spirit) and its BQM-74 Chukar, an aerial target drone that was introduced back in 1968. Luckily for this company, outside of defense news, it hasn’t made headlines except to show a solid earnings report for Q1. Rumohr (quoted above) noted investors might be neutral or positive with the mostly on-track Q1 turnout which included “robust bookings and slightly nudged 2019 guide given high investor expectations.”
EPS of $5.06 beat estimates by Rumohr’s $.44 and the Street’s by $.47 with better than expected profits due to higher income plus lower tax rates. However, segment profits were below Rumohr’s estimates as well as sales, which dipped below estimations slightly for the quarter, though sales are up 22% year over year.
Wall Street is bullish on this stock. Out of 9 analysts, 7 are buy and 2 hold. Rumohr is one of the two holds and offers a price target below consensus at $300, which still shows an upside of nearly 7%. As for the Street, analyst consensus is $318.50, showing an upside of 13%.
Well, here is a headline for the ages: “Blowout Q1 Suggests Extended Upside.” That was the title of Rumohr’s report (quoted above). The star analyst, who specializes in the aerospace sector, says due to positive guidance, the stock appears to still have upside with potential gains for 2020-2021. The share price is just a tad above NOC, at $330 a share and according to Rumohr…“LMT remains our top defense big cap pick.”
Lockheed Martin specializes in defense aircraft. Some popular programs are the A-4AR Fightinghawk, introduced in 1997 for the Argentine Air Force, the F-16 Falcon, popular due to its cost effectiveness and high performance, and the new F-35 Joint Strike Fighter.
Revenues for LMT topped expectations, tacking on 19% with EPS of $5.99 (beating Street estimates of $4.32) and a healthy cash flow. Rumohr notes the first quarter is often a weak season when it comes to cash flow. This quarter the company reported $1,379 million, which exceeded the analyst’s expectation of $892 million.
Looking ahead, LMT already has $15.4 billion worth of orders, which is 7% greater than expected sales. A number of companies have already placed orders, including the defense department of Saudi Arabia, which made headlines back in March. The U.S. government awarded LMT nearly $1 billion on behalf of Saudi Arabia for an advanced missile defense system. This is just part one of what is thought to be a $15 billion contract between the two governments.
LMT’s CEO, Marillyn Hewson, thanked the company for its work and noted some of the top contributors to the strong quarter: “These results reflect the quality of our workforce, the strength of the corporation and the focus we all have on delivering value to our customers and stockholders […] The growth was led by Missiles and Fire Control as deliveries of tactical and strike weapons, particularly in our Precision Fires organization, and our PAC-3 missiles grew from last year. Our Aeronautics business area also saw strong sales growth as we continue to increase production of our F-35 Joint Strike Fighter and delivered 26 aircrafts this quarter compared to 14 in last year's first quarter.”
Hewson also noted LMT’s government satellites team produced a fifth and sixth spacecraft and was able to complete crucial testing milestones ahead of schedule. Shoot for the stars, right?
A number of analysts have reiterated buy ratings for LMT in the last few days. Out of 10, LMT has 6 buy ratings and 4 hold. Considered a moderate buy on Wall Street, the consensus price target of $347 shows a near 6% upside from the current share price of $330.
Author: Shanna Fuld
The author does not have any positions in the companies listed above.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.