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Why Is Lockheed Martin (LMT) Down 5.8% Since its Last Earnings Report?

A month has gone by since the last earnings report for Lockheed Martin Corporation LMT. Shares have lost about 5.8% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is LMT due for a breakout? 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 Beats on Q1 Earnings, Raises '18 Guidance

Lockheed Martin reported first-quarter 2018 earnings from continuing operations of $4.02 per share, which surpassed the Zacks Consensus Estimate of $3.35 by 20%. The earnings figure also came in higher than the year-ago figure of $2.69 per share, by 49%.

Operational Highlights

In the reported quarter, total revenues came in at $11.64 billion surpassing the Zacks Consensus Estimate of $11.30 billion by 2.9%. The top line was also up 3.8% from $11.21 billion a year ago. Notably, all segments registered year-over-year growth in sales, except Space Systems.

Backlog

Pentagon’s prime defense contractor, Lockheed Martin, ended the first quarter (on Mar 25, 2018) with $104.8 billion in backlog, down 0.7% from $105.5 billion at the end of first-quarter 2017. Of this, the Aeronautics segment accounted for $35.1 billion while Rotary and Mission Systems contributed $30.1 billion. Also, $21.5 billion came from Space Systems and $18 billion from Missiles and Fire Control.

Segmental Performance

Aeronautics: Revenues at this segment increased 7% year over year to $4.4 billion. The improvement was primarily driven by higher net sales from the F-35 program on account of increased production and sustainment volume. Increased net sales for other combat aircraft modernization programs backed by volume expansion also boosted the segment’s top line.

While operating profit advanced 8% year over year to $474 million, operating margin expanded 10 bps to 10.8%.

Missiles and Fire Control: Quarterly sales rose 8% year over year to $1.7 billion owing to higher net sales for increased volume on classified programs as well as tactical missiles programs backed by increased volume.

Operating profit improved 12% year over year to $261 million, while operating margin expanded 50 bps to 15.6%.

Rotary and Mission Systems: Quarterly sales of $3.2 billion grew 3% on account of higher sales for training and logistics solutions programs, integrated warfare systems and sensors programs as well as command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance (C6ISR) programs.

Operating profit improved a solid 143% year over year to $311 million and operating margin expanded 550 bps to 9.6%.

Space Systems: Revenues at this segment dropped 3% year over year to about $2.3 billion in the first quarter. The decline can be primarily attributed to lower volumes for government satellite programs and commercial satellite programs.

Operating profit was down 9% to $264 million, while operating margin contracted 70 bps to 11.3% in the quarter.

Financial Condition

Cash and cash equivalents were $2.39 billion as of Mar 25, 2018 compared with $2.86 billion as of Dec 31, 2017. Long-term debt was $13.47 billion compared with $13.51 billion as of Dec 31, 2017.

Cash from operations at the end of the first quarter was $0.6 billion compared with $1.7 billion at the end of year-ago quarter.

In the quarter under review, Lockheed Martin repurchased 0.9 million shares for $300 million compared with the buyback of 1.9 million shares for $500 million a year ago. Also, the  company paid dividends worth $586 million to shareholders compared with the year-ago period figure of $544 million.

Guidance

Lockheed Martin has raised its 2018 financial guidance. The company expects to generate revenues in the range of $50.4-$51.9 billion compared with the prior guidance range of $50.0-$51.5 billion.

On the bottom-line front, the company expects 2018 GAAP earnings per share to be in the band of $15.80-$16.10, up from the earlier guidance of $15.20-$15.50.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.

Lockheed Martin Corporation Price and Consensus

Lockheed Martin Corporation Price and Consensus | Lockheed Martin Corporation Quote

VGM Scores

At this time, LMT has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, 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.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Notably, LMT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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