Will Solid Sales Growth Aid Lockheed's (LMT) Q3 Earnings?

Lockheed Martin Corporation LMT is slated to release third-quarter 2020 results on Oct 20, before the opening bell.

The company’s largest segment Aeronautics is expected to have generated solid growth in the soon-to-be-reported quarter. Consistent growth in other segments is also expected to boost its overall results.

Let's see how things have shaped up prior to the earnings announcement.

Aeronautics Unit: A Key Catalyst

Lockheed Martin’s Aeronautics segment has been its major driver for decades. It primarily manufactures advanced, combat-proven jets and comprises almost 40% of the company’s top line.

Robust order flow for the products of this segment, especially F-35, over the past few quarters are expected to have translated into solid sales growth during the third quarter.

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation price-eps-surprise | Lockheed Martin Corporation Quote

Moreover, amid the uncertainties caused by the coronavirus outbreak, strong support from the Department of Defense and U.S. government allowed the defense contractor to minimize the negative financial impact on its operational results. This, in turn, might have boosted top-line performance of the Aeronautics business unit.

Notably, the Zacks Consensus Estimate for this unit’s revenues stands at $6,386 million, indicating a 3.4% improvement from the prior-year quarter’s reported figure.

The MFC Unit: Another Major Driver

We expect Lockheed Martin’s Missiles and Fire Control (MFC) segment, which provides critical missile defense support to the United States and its foreign allies, to have delivered a strong operational performance in the soon-to-be-reported quarter.

Notably, increased sales volumes of critical and tactical strike weapons like Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) are likely to have contributed to this unit’s top line in the third quarter of 2020. Moreover, this unit has been expanding its production facilities to accommodate rising demand for THAAD interceptors and can be projected to have delivered a handful of such interceptors in the September quarter as well. This, in turn, might have also boosted the sales performance of MFC unit.  

The Zacks Consensus Estimate for MFC segment’s revenues is currently pegged at $2,851million, implying a 9.6% increase from the year-ago quarter’s reported figure.

Earnings and Revenue Estimates

Lockheed Martin’s Space Systems business segment is expected to deliver a 10.7% improvement in quarterly sales from the prior-year’s reported figure, based on a solid operational performance anticipated along with order growth observed in the preceding few quarters.

Therefore, solid revenue growth in majorityof the company’s business segments is likely to have bumped up Lockheed Martin’s overall top line in the to-be-reported quarter. The Zacks Consensus Estimate for thecompany’s third-quarter revenues stands at $16.24 billion, indicating a solid 7% increase from the year-earlier quarter’s reported figure.

The estimated top-line growth along with the company’s resilient portfolio makes us confident about its ability to generate a robust bottom line.

The Zacks Consensus Estimate for the defense giant’s third-quarter earnings is pegged at $6.07 per share, implying a 7.2% rise from the prior-year quarter's reported number.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Lockheed Martin this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat but this is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lockheed Martin has an Earnings ESP of -1.19% and a Zacks Rank #3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some defense companies you may want to consider as these have the right combination of elements to beat on earnings in their upcoming releases:

L3Harris Technologies LHX has an Earnings ESP of +0.57% and a Zacks Rank #2. The company is scheduled to announce third-quarter 2020 earnings on Oct 30.

Northrop Grumman NOC has an Earnings ESP of +1.23% and a Zacks Rank of 2. The company is set to announce third-quarter 2020 earnings on Oct 22.

Kratos Defense Security Solutions KTOS has an Earnings ESP of +33.33% and a Zacks Rank of 3. The company is expected to announce third-quarter 2020 earnings soon.

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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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