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How to Play Lockheed Martin (LMT) Ahead of Q2 Earnings?
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Lockheed Martin Corporation (LMT - Free Report) is slated to release second-quarter 2024 results on Jul 23, before the opening bell.
The Zacks Consensus Estimate for LMT’s revenues is pegged at $17.06 billion, implying 2.2% growth from the year-ago quarter's reported figure. The consensus mark for second-quarter earnings is pegged at $6.45, suggesting a 4.2% decline from $6.73 reported in the prior-year quarter. The bottom-line estimate has inched up a penny in the past seven days.
Image Source: Zacks Investment Research
LMT, America’s largest defense contractor, has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.07%.
Image Source: Zacks Investment Research
Earnings Whisper
Our proven model predicts an earnings beat for Lockheed this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
A potential solid sales improvement from each of LMT’s four business segments is likely to have bolstered the company’s top-line performance.
Aeronautics to Post Solid Sales
The Aeronautics segment, which primarily manufactures advanced, combat-proven jets, and contributes almost 40% to the company’s top line, is likely to deliver impressive second-quarter results.
A ramp-up in the production of the F-16 program, along with higher sales volume from production, development and sustainment contracts for the F-35 program, is likely to have bolstered this segment’s top line. Higher sales volume from classified programs might have also boosted this unit’s revenues.
The Zacks Consensus Estimate for the Aeronautics unit’s second-quarter revenues is pegged at $6,915.9 million, indicating a 0.6% rise from the prior-year period’s reported figure.
Impressive Projections From Other Segments
The remaining three segments are also projected to have performed favorably in the to-be-reported quarter.
Higher sales volume from the fleet ballistic missile program, as well as that from space development agency transport and tracking layer programs, must have boosted the Space segment’s top line. Also, a production ramp-up of hypersonic and next-generation interceptor programs might have contributed favorably to this segment’s revenue growth.
The Zacks Consensus Estimate for the segment’s revenues is pinned at $3,176.8 million, indicating a 0.3% improvement from the prior-year quarter’s reported number.
LMT’s Missiles and Fire Control (“MFC”) segment provides critical missile defense support to the United States and foreign allies. A higher sales volume from tactical and strike missile programs, as well as integrated air and missile defense, is likely to have benefited this unit’s quarterly sales performance.
The Zacks Consensus Estimate for MFC’s second-quarter revenues is currently pegged at $2,906.8 million, indicating 5.5% growth from the top line recorded a year ago.
Higher sales volume from the Sikorsky unit, particularly driven by CH-53K, Blackhawk and Seahawk helicopters, is likely to have bolstered the Rotary and Mission Systems (“RMS”) segment’s sales in the quarter under review.
The Zacks Consensus Estimate for RMS’ revenues is currently pegged at $4,013.8 million, indicating a 3% improvement from the top line registered in the prior-year quarter.
Expenses to Consider
Higher interest expenses remain a headwind for the majority of U.S. companies, with Lockheed Martin being no exception. Since no reduction has been made in the nation’s interest rate in recent times, notable interest expenses can be expected to have weighed on LMT’s second-quarter earnings.
Our model estimate for second-quarter interest expenses is $298.9 million, reflecting a solid 34% increase year over year.
During the first quarter of 2024, LMT recognized a reach-forward loss of $100 million associated with a classified missile program at its MFC unit, thereby bringing the cumulative losses recognized on the program to approximately $150 million.
With a potential loss of $1.3 billion associated with this program, LMT is expected to have incurred a notable loss in the second quarter as well. This, in turn, must have adversely impacted its margin performance and, thereby, bottom-line growth.
Price Performance & Valuation
Lockheed Martin’s shares have exhibited an upward trend, gaining a notable percentage over the year-to-date period. Specifically, the stock soared 5% year to date, outperforming the Zacks aerospace-defense industry’s decline of 9.9%.
YTD Performance
Image Source: Zacks Investment Research
As evident from the image, other notable stocks from the same industry have also rallied year to date and comfortably outpaced the industry’s performance. Shares of General Dynamics (GD - Free Report) and L3Harris Technologies (LHX - Free Report) have risen 12.9% each, while that of Textron (TXT - Free Report) rallied 15.1%.
From a valuation perspective, LMT is trading at a relatively cheaper level when compared to its industry. Currently, LMT is trading at 17.35X forward 12 months earnings, which is lower than the industry’s forward earnings multiple of 18.83X. However, its five-year median is 15.70X. So, the company’s valuation looks somewhat stretched compared with its own range.
LMT’s Price-to-Earnings (forward 12 Months)
Image Source: Zacks Investment Research
Investment Thesis
With geopolitical tensions looming hard in the global map lately, defense contractors like Lockheed Martin have succeeded in clinching major orders for its varied products in recent quarters. This, in turn, can be expected to have boosted its second-quarter revenues. Revenues earned from sustainment contracts for providing valuable services of its renowned products like the F-35 fighter jet and Black Hawk helicopters must have also contributed to its top-line growth.
Backed by its solid top-line prospects, the company has been offering notable rewards to its shareholders. Impressively, LMT’s dividend yield of 2.65% outpaces that of S&P 500 (1.25%).
However, increasing interest expenses remain a major headwind for the company’s near-term bottom-line growth. These might have also contributed to LMT’s elevated leverage, as evident from its long-term debt-to-capital ratio.
Image Source: Zacks Investment Research
Should You Buy LMT Now?
Despite the few challenges faced by Lockheed Martin at present, it might not be a risk to make an entry for this stock, before coming Tuesday. This is because it is trading at a discount compared to its industry. This renowned fighter jet maker is less likely to disappoint with its second-quarter results, considering the upward revision in its earnings estimates as well as a positive Earnings ESP.
Image: Bigstock
How to Play Lockheed Martin (LMT) Ahead of Q2 Earnings?
Lockheed Martin Corporation (LMT - Free Report) is slated to release second-quarter 2024 results on Jul 23, before the opening bell.
The Zacks Consensus Estimate for LMT’s revenues is pegged at $17.06 billion, implying 2.2% growth from the year-ago quarter's reported figure. The consensus mark for second-quarter earnings is pegged at $6.45, suggesting a 4.2% decline from $6.73 reported in the prior-year quarter. The bottom-line estimate has inched up a penny in the past seven days.
LMT, America’s largest defense contractor, has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.07%.
Earnings Whisper
Our proven model predicts an earnings beat for Lockheed this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Lockheed Martin has a Zacks Rank #3 and an Earnings ESP of +0.59%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Key Factors to Note
A potential solid sales improvement from each of LMT’s four business segments is likely to have bolstered the company’s top-line performance.
Aeronautics to Post Solid Sales
The Aeronautics segment, which primarily manufactures advanced, combat-proven jets, and contributes almost 40% to the company’s top line, is likely to deliver impressive second-quarter results.
A ramp-up in the production of the F-16 program, along with higher sales volume from production, development and sustainment contracts for the F-35 program, is likely to have bolstered this segment’s top line. Higher sales volume from classified programs might have also boosted this unit’s revenues.
The Zacks Consensus Estimate for the Aeronautics unit’s second-quarter revenues is pegged at $6,915.9 million, indicating a 0.6% rise from the prior-year period’s reported figure.
Impressive Projections From Other Segments
The remaining three segments are also projected to have performed favorably in the to-be-reported quarter.
Higher sales volume from the fleet ballistic missile program, as well as that from space development agency transport and tracking layer programs, must have boosted the Space segment’s top line. Also, a production ramp-up of hypersonic and next-generation interceptor programs might have contributed favorably to this segment’s revenue growth.
The Zacks Consensus Estimate for the segment’s revenues is pinned at $3,176.8 million, indicating a 0.3% improvement from the prior-year quarter’s reported number.
LMT’s Missiles and Fire Control (“MFC”) segment provides critical missile defense support to the United States and foreign allies. A higher sales volume from tactical and strike missile programs, as well as integrated air and missile defense, is likely to have benefited this unit’s quarterly sales performance.
The Zacks Consensus Estimate for MFC’s second-quarter revenues is currently pegged at $2,906.8 million, indicating 5.5% growth from the top line recorded a year ago.
Higher sales volume from the Sikorsky unit, particularly driven by CH-53K, Blackhawk and Seahawk helicopters, is likely to have bolstered the Rotary and Mission Systems (“RMS”) segment’s sales in the quarter under review.
The Zacks Consensus Estimate for RMS’ revenues is currently pegged at $4,013.8 million, indicating a 3% improvement from the top line registered in the prior-year quarter.
Expenses to Consider
Higher interest expenses remain a headwind for the majority of U.S. companies, with Lockheed Martin being no exception. Since no reduction has been made in the nation’s interest rate in recent times, notable interest expenses can be expected to have weighed on LMT’s second-quarter earnings.
Our model estimate for second-quarter interest expenses is $298.9 million, reflecting a solid 34% increase year over year.
During the first quarter of 2024, LMT recognized a reach-forward loss of $100 million associated with a classified missile program at its MFC unit, thereby bringing the cumulative losses recognized on the program to approximately $150 million.
With a potential loss of $1.3 billion associated with this program, LMT is expected to have incurred a notable loss in the second quarter as well. This, in turn, must have adversely impacted its margin performance and, thereby, bottom-line growth.
Price Performance & Valuation
Lockheed Martin’s shares have exhibited an upward trend, gaining a notable percentage over the year-to-date period. Specifically, the stock soared 5% year to date, outperforming the Zacks aerospace-defense industry’s decline of 9.9%.
YTD Performance
As evident from the image, other notable stocks from the same industry have also rallied year to date and comfortably outpaced the industry’s performance. Shares of General Dynamics (GD - Free Report) and L3Harris Technologies (LHX - Free Report) have risen 12.9% each, while that of Textron (TXT - Free Report) rallied 15.1%.
From a valuation perspective, LMT is trading at a relatively cheaper level when compared to its industry. Currently, LMT is trading at 17.35X forward 12 months earnings, which is lower than the industry’s forward earnings multiple of 18.83X. However, its five-year median is 15.70X. So, the company’s valuation looks somewhat stretched compared with its own range.
LMT’s Price-to-Earnings (forward 12 Months)
Investment Thesis
With geopolitical tensions looming hard in the global map lately, defense contractors like Lockheed Martin have succeeded in clinching major orders for its varied products in recent quarters. This, in turn, can be expected to have boosted its second-quarter revenues. Revenues earned from sustainment contracts for providing valuable services of its renowned products like the F-35 fighter jet and Black Hawk helicopters must have also contributed to its top-line growth.
Backed by its solid top-line prospects, the company has been offering notable rewards to its shareholders. Impressively, LMT’s dividend yield of 2.65% outpaces that of S&P 500 (1.25%).
However, increasing interest expenses remain a major headwind for the company’s near-term bottom-line growth. These might have also contributed to LMT’s elevated leverage, as evident from its long-term debt-to-capital ratio.
Should You Buy LMT Now?
Despite the few challenges faced by Lockheed Martin at present, it might not be a risk to make an entry for this stock, before coming Tuesday. This is because it is trading at a discount compared to its industry. This renowned fighter jet maker is less likely to disappoint with its second-quarter results, considering the upward revision in its earnings estimates as well as a positive Earnings ESP.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.