Pentagon's prime contractor Lockheed Martin Corp. ( LMT ) is set to release its fourth-quarter 2014 results before the opening bell on Tuesday, Jan 27. In the preceding quarter, Lockheed Martin delivered a positive 1.47% earnings surprise. Let's see how things are shaping up prior to this announcement.
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 Lockheed Martin has the right mix.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.78%. This is because the Most Accurate estimate is at $2.86 while the Zacks Consensus Estimate is pegged lower at $2.81. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Lockheed Martin currently carries a Zacks Rank #3 (Hold).
The company's Zacks Rank #3 and positive ESP make us reasonably confident of a positive earnings beat.
Note that stocks with Zacks Ranks #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.
What is Driving the Better-than-Expected Earnings?
Lockheed Martin continued to prove its dominance be it as an artillery supplier, an aeronautics innovator, a space janitor or as a universal business organizer. As the largest U.S. aerospace and defense contractor, it won a steady stream of orders from the different U.S. defense departments as well as from allied nations.
Lockheed Martin is looking to bolster its satellite product coverage given the vital role satellites play in determining military strategy and protecting national interests besides exploring the space. To that end, it is the prime contractor of the Orion Multipurpose Crew Vehicle that is intended to carry astronauts into the solar system beyond the earth's orbit. NASA and Lockheed Martin finished the final assembly and testing of the Orion spacecraft and completed the first test flight of NASA's deep space exploration capsule in Dec 2014.
Lockheed Martin clinched a whopping $4.7 billion deal from the Pentagon for the eighth batch of F-35 Lightning II Joint Strike Fighter ("JSF") jets. Per the agreement, the company will develop the eighth batch comprising 43 units of F-35 fighter jets for the U.S. military and its allies, including Britain. This includes 29 jets for the U.S. and 14 for five other countries, namely, Israel, Japan, Norway, Britain and Italy.
Despite Lockheed Martin's popularity as a manufacturer of fighter jets, notably the F-35, the company has also been known for its environmental stewardship. In recent times, the defense prime participated in many alternative energy ventures, like ocean energy projects, to protect its top line from dwindling defense budgets. Lockheed Martin's technological prowess will come in particularly handy at a time the world is more and more concerned about climate change issues.
The company is also on its way to develop a new reactor, a power source based on nuclear fusion, called the compact fusion reactor ("CFR"). Skunk Works, the cutting-edge technology provider of the company, is in charge of the development program. Lockheed Martin is expected to complete the first reactor within a decade. This project is a major step toward finding alternative sources of power as the reactor will be capable of meeting the energy requirement of up to 100,000 people.
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:
The Boeing Co. ( BA ) has an Earnings ESP of +1.44% and holds a Zacks Rank #2.
Textron Inc. ( TXT ) has an Earnings ESP of +12.16% and holds a Zacks Rank #2.
General Dynamics Corp. ( GD ) has an Earnings ESP of +1.91% and carries a Zacks Rank #3.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.