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Can Lockheed (LMT) Keep its Earnings Streak Alive in Q2?

Zacks

Lockheed Martin Corporation LMT is set to release second-quarter 2017 results on Jul 18, before the opening bell.

In the prior quarter, the company reported a positive earnings surprise of 8.70%. It is worth noting that Lockheed Martin has outperformed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 13.88%.

Let’s see how things are shaping up at the company prior to this announcement.

Factors to Consider


Lockheed Martin continues to enjoy its position as the largest defense contractor in the U.S., courtesy of its varied product offerings. The multiple contracts won by the company from Pentagon as well as foreign allies raise optimism.

The important contracts received during the second quarter started with the $582 million modification contract that Lockheed Martin won from the U.S. Navy, for providing air vehicle initial spares.

In the same month, the company clinched a few other notable contracts, including a $288 million Army deal for acquiring Instrumentable Multiple Integrated Laser Engagement System (I-MILES) Combat Vehicle Tactical Engagement Simulation System (CV TESS) and a $373 million modification contract involving low-rate initial production of Lot 10 F-35 jets. Further, United Launch Alliance (ULA) – a Lockheed Martin and Boeing joint venture (JV) – won two modification contracts, totaling $416.9 million, for launch vehicle production services (LVPS).

In the next two months of the quarter, Lockheed Martin won significant deals from Pentagon. These include a modification contract worth $208 million for LVPS and a foreign military sales (FMS) contract worth $471.7 million for Guided Multiple Launch Rocket System (GMLRS),

Meanwhile, on May 20, Trump signed an arms deal worth $110 billion with Saudi Arabia, which holds a potential value of $350 billion over 10 years. Lockheed seemed to have garnered the majority of this huge arms deal. Saudi Arabia is set to procure its integrated air and missile defense, combat ship, tactical aircraft, and rotary wing technologies and programs, for $28 billion.

Moreover, at the end of the quarter, Lockheed Martin inked a landmark deal with Tata Advanced Systems Limited (TASL) – the defense arm of India’s multinational conglomerate, Tata Group – to jointly manufacture the former’s F-16 Block 70 fighter jets in India. This came as a move to expand its foothold in the Indian market, the world’s largest military weapons importer.

However, management expects the company’s segment operating profit to remain under pressure for the second quarter and the rest of 2017, due to some unanticipated events that occurred in the first quarter. In fact, these events led the company to reduce its prior 2017 guidance for segment operating profit by $30 million.

Moreover, the company’s Missile and Fire Control segment is expected to reflect a slightly lower-than-expected performance in terms of margin for throughout 2017. No improvement can be expected any time soon.

For the second quarter, the Zacks Consensus Estimate for earnings stands at $3.09 per share, down 6.79% year over year, while the revenue estimate is pegged at $12.47 billion, implying a 3.47% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Lockheed Martin is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Lockheed Martin has an Earnings ESP of +0.97%. This is because the Most Accurate estimate is pegged at $3.12, higher than the Zacks Consensus Estimate of $3.09. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lockheed Martin carries a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some defense companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

General Dynamics Corp. GD is expected to report second-quarter 2017 results on Jul 26. The company has an Earnings ESP of +1.24% and a Zacks Rank #3.

Raytheon Company RTN is expected to report second-quarter 2017 results on Jul 27. The company has an Earnings ESP of +0.57% and a Zacks Rank #3. You can seethe complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls Industries, Inc. HII is expected to report second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +4.96% and a Zacks Rank #3.

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