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Lockheed (LMT) Up 3.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Is (CZZ) Outperforming Other Basic Materials Stocks This Year?

A month has gone by since the last earnings report for Lockheed Martin (LMT). Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lockheed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lockheed Martin Beats on Q1 Earnings, Raises ‘19 View

Lockheed Martin reported first-quarter 2019 earnings of $5.99 per share, which surpassed the Zacks Consensus Estimate of $4.29 by 39.6%. The bottom line also improved 49% from the year-ago quarter’s $4.02. This year-over-year upside can be attributed to solid sales and operating profit.

Operational Highlights

In the reported quarter, net sales amounted to $14.34 billion, which outshined the Zacks Consensus Estimate of $12.65 billion by 13.4%. The reported figure also increased 23.2% from $11.64 billion a year ago. Notably, all segments registered year-over-year growth in sales.

Backlog

Lockheed Martin ended the first quarter (on Mar 31, 2019) with $133.5 billion in backlog, up 2.3% from $130.5 billion at the end of 2018. Of this, the Aeronautics segment accounted for $52.34 billion, while Rotary and Mission Systems contributed $31.33 billion. Also, $26.59 billion stemmed from Space Systems and $23.21 billion from the Missiles and Fire Control segment.

Segmental Performance

Aeronautics: Sales increased 27% year over year to $5.58 billion, primarily driven by higher net sales from the F-35 and F-22 programs. Also, higher sales from classified development activities owing to increased volume contributed to sales growth at this unit.

While operating profit improved 23% year over year to $585 million, operating margin contracted 30 basis points (bps) to 10.5%.

Missiles and Fire Control: Quarterly sales surged 40% year over year to $2.35 billion owing to higher sales from tactical and strike missiles programs as well as integrated air and missile defense programs. Also, higher sales from sensors and global sustainment programs contributed to this unit’s top-line growth.

While operating profit increased 60% year over year to $417 million, operating margin expanded 210 bps to 17.7%.

Rotary and Mission Systems: Quarterly sales of $3.76 billion increased 17% from the prior-year quarter on account of higher sales from integrated warfare systems and sensors programs as well as the Sikorsky helicopter programs.

Operating profit improved 22% year over year to $379 million, while operating margin expanded 50 bps to 10.1%.

Space Systems: Sales rose 13% year over year to about $2.64 billion in the first quarter. The uptick was driven by higher net sales from government satellite, Global Positioning System (GPS) III, government satellite services, the Advanced Extremely High Frequency (AEHF) program and the Orion program.

Operating profit increased 27% to $334 million and operating margin expanded 140 bps to 12.7% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $0.99 billion as of Mar 31, 2019, compared with $0.77 billion at the end of 2018. Long-term debt summed $12.62 billion, slightly higher than the prior year-end level of $12.60 billion.

Cash from operations at the end of first-quarter 2019 amounted to $1.66 billion compared with $0.63 billion a year ago.

During the reported quarter, the company repurchased 1 million shares for $281 million compared with the buyback of 0.9 million shares for $300 million a year ago.

Lockheed Martin paid dividends worth $638 million to its shareholders in the first quarter compared with the year-ago figure of $586 million.

Guidance

For 2019, Lockheed Martin raised its financial guidance. The company currently expects to generate revenues of $56.75-$58.25 billion compared with $55.75-$57.25 billion projected earlier. The Zacks Consensus Estimate for full-year revenues, pegged at $56.82 billion, lies near the lower end of the company’s updated guidance.

Earnings per share for 2019 are anticipated to be in the $20.05-$20.35 range compared with $19.15-$19.45 guided earlier. The Zacks Consensus Estimate for the company’s full-year earnings, pegged at $19.46, lies below the company’s updated guidance.

Additionally, in 2019, the company expects to generate cash from operations of more than $7.5 billion compared with the earlier projection of generating more than $7.4 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Lockheed has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lockheed has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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