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Is Lockheed Martin (LMT) Poised for a Q3 Earnings Beat?

Lockheed Martin Corp.LMT is set to report third-quarter 2015 results on Oct 20 before the market opens. Last quarter, the company posted a positive earnings surprise of 10.1%. Let's see how things are shaping up for this announcement.

Factors Influencing Third Quarter

Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from the U.S. Department of Defense.

During the quarter, the company experienced a nice flow of contracts from the Pentagon, revealing its inherent strength. Foreign military sales or FMS also remain the key tool for the company's top-line expansion. Additionally, Lockheed is likely to post higher-than-projected revenues and orders as 65% of its orders are planned for the second half of the year.

The company's Aeronautics division, which makes F-35 fighter jets, will likely report a higher top and bottom line owing to growing F-35 volumes and support activities.

On the second-quarterearnings call Lockheed revised its earnings guidance upward for 2015 to the range of $11.00-$11.30 per share. This upward revision was mainly due to a higher operating margin outlook coming from robust Space Systems and Mission Systems & Training divisions' unit forecasts. The balance of the incremental operating profit projection is expected to come in from the Mission Systems & Training division, which will be integrating Sikorsky. This restructuring is expected to support growth in the company's profit in the third quarter.

Lastly, a major portion of the anticipated increase in Lockheed's bottom line for 2015 will come from a reduced share count owing to the company's active share buyback program. The defense behemoth has increased its share repurchase authorization by $3 billion. These share buybacks should help to grow the company's per share earnings in the third quarter.

Lockheed has also increased its quarterly dividend by 10%, bringing the annualized payout to $6.60 per share from $6.00 per share earlier. This marked the 13th consecutive annual double-digit increase in Lockheed's quarterly dividend rate.

Why a Likely Positive Surprise?

Our proven model shows that Lockheed Martin is likely to beat earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates, and Northrop Grumman has the right mix.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.74%. This is because the Most Accurate estimate is at $2.72 while the Zacks Consensus Estimate is pegged lower at $2.70. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: Lockheed Martin currently carries a Zacks Rank #3.

The company's Zacks Rank #3 and positive ESP make us reasonably confident of an earnings beat.

Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

General Dynamics Corp. GD has an Earnings ESP of +4.76% and a Zacks Rank #3. It will report its quarterly result on Oct 28, 2015.

Northrop Grumman Corp. NOC has an Earnings ESP of +4.07% and a Zacks Rank #2. The company is scheduled to report its quarterly result on Oct 28, 2015.

Embraer SA ERJ has an Earnings ESP of +2.44% and a Zacks Rank #3. The company is expected to report its quarterly result on Oct 27, 2015.

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NORTHROP GRUMMN (NOC): Free Stock Analysis Report

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LOCKHEED MARTIN (LMT): Free Stock Analysis Report

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


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

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