Will Lockheed Martin Tower Above Boeing in Q2 Earnings?

Military aviation giant Lockheed Martin Corporation LMT is set to report second-quarter earnings results on Jul 21, before the opening bell. The June quarter has seen several companies grapple with the effects of the coronavirus pandemic. But the same cannot be said about Lockheed Martin. Being a defense contractor, Lockheed Martin is relatively a safe haven from any economic upheaval caused by the spread of the virus. Economic recession and record unemployment level have actually had no material impact on its business. Meanwhile, with an order accumulation worth $144 billion, the company certainly thrived in the second quarter. While Lockheed Martin’s civil aerospace peers saw order cancellations for passenger planes on mass scale amid the pandemic, the defense contractor’s aeronautics, and missile and fire control units are expected to have experienced substantial growth in the second quarter.  Talking about the company’s aeronautics unit, which manufactures combat jets, have been particularly successful in delivering a number of jets in the second quarter. Notably, during the quarter, the company delivered the U.S. Air Force Reserve’s first HC-130J Combat King II and the first KC-130J Super Hercules tanker. Most importantly, the company ramped up production of F-35 Joint Strike Fighter, a trillion-dollar program, in the second quarter. However, sceptics may say that the company saw supply chain disruptions on key products like the F-35 amid the pandemic. However, increased production and sale of its potent jets in the second quarter are expected to have boosted the top line for the aeronautics units. At the same time, Lockheed Martin’s missile and fire control unit too delivered a promising operational performance in the soon-to-be-reported quarter. Particularly, in the second quarter, LONGBOW Limited Liability company a joint venture between Lockheed Martin and Northrop Grumman NOC, delivered the 500th APG-78 LONGBOW Fire Control Radar for the AH-64 Apache helicopter. The company also delivered the first Q-53 system equipped with GaN to the U.S. armed forces. And the upcoming results are expected to reflect such deliveries in the form of increased top line for the missile and fire control unit. Forecasters, thus, expect total revenues for the second quarter at $15.24 billion, suggesting a 5.6% rise from the year-ago levels. Lest we forget, the company reported revenues of $15.69 billion in the first quarter, up 9.4% from the same period last year.   But does the Trump administration’s commitment to spend trillions of dollars due to COVID-19 build pressure on Pentagon’s defense budget and subsequently dent Lockheed Martin’s profit margins? At least, the impact surely wasn’t felt in the second quarter because no budget cuts have happened yet. Many do however feel that the Defense Department may be compelled to cut its budget in the months to come. Nonetheless, it’s widely expected that Lockheed Martin’s second-quarter earnings per share will be $5.71, indicating a 14.2% rise from the same period a year ago.   Encouraging earnings performance, without a doubt, leads to a rise in share price. The company’s expected earnings growth rate for the September quarter and current year is 8.8% and 9.6%, respectively. In fact, shares of the company have risen 8.9% so far from the beginning of the June quarter.   Amid such positives, one of Lockheed Martin’s main competitors is The Boeing Company BA, which has seen its shares tank on concerns surrounding the grounding of the 737 Max models due to the outbreak of coronavirus. The aerospace giant’s shares have dropped 46% year to date.   Boeing’s customers cancelled orders for 60 737 Max in June, dealing another blow since the model is already grounded since March 2019 after two fatal crashes claimed 346 lives. The company delivered four planes in May but cancellations continued to outpace orders as coronavirus roiled the airline industry in the second quarter. In fact, Boeing has lost 323 orders for various planes this year, something that will certainly weigh on revenues, earnings and operating cash flow in the second quarter and beyond. By the way, the company is set to report its June-quarter earnings report on Jul 29, before the opening bell. And with Boeing’s aircraft cancellations outpacing new orders, analysts expect the company’s revenues at $12.61 billion, suggesting a decline of almost 20% from the year-ago levels. Similarly, the company’s projected loss of $2.93 per share suggests a decline of 200.3% from the year-ago number. What’s more, Boeing reported a loss of $1.70 per share in first-quarter 2020, which deteriorated significantly from the year-ago quarter’s earnings of $3.16.   Moreover, the jet maker generated $4.30 billion of operating cash outflow in the first quarter, compared to cash inflow of $2.78 billion at the end of the first quarter last year. To this end, Boeing’s management expects negative operating cash flow for the second quarter as well. Discouraging earnings performance, no doubt, impacts stock price movement. Shares of Boeing are projected to drop a whopping 217.2% in the September quarter. Thus, it can be safely concluded that Lockheed Martin’s pandemic-proof business and increase in deliveries, compared to Boeing’s scrapped orders, lend the former an edge over the latter in the upcoming results. Lockheed Martin, currently, has a Zacks Rank #3 (Hold), while Boeing has a Zacks Rank #4 (Sell) and an Earnings ESP of -4.82%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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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.

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