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Mark Vickery

Will Lockheed Martin (LMT) Beat Earnings Estimates This Quarter?

ERJ BA GD LMT

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Lockheed Martin Corporation (LMT - Analyst Report) is set to report second quarter 2013 results on Jul 23. Last quarter it posted a 23.4% surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Quarter

Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders. We expect Lockheed Martin to register a stable performance in the long run due to a leveraged presence in the Army, Air Force, Navy and IT programs. Also, shareholder return will continue to be shored up by the company’s focus on debt repayment, its ongoing share repurchase program and the incremental dividend.

Lockheed has successfully clinched a number of defense contracts in the first half of 2013, thanks to its diversified operations. The company’s persistent focus on technological innovation has allowed Lockheed to attract lucrative government orders in the past as well as present.

The most notable award received by the defense major in Jun 2013 is the $320 million U.S. Air Force contract for the supply of enhanced communications reliability, survivability, and information capabilities.

Overseas contract flows have also been promising. Recently, Lockheed secured a $308.3 million foreign military sales contract for the continued delivery of tactical missiles and modification kits to Kuwait defense forces.

However, like its peers, Lockheed Martin continues to face the brunt of defense budget cuts which will limit its operating results

Earnings Whispers?

Our proven model does not conclusively show that Lockheed Martin is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate is $2.16 while the Zacks Consensus Estimate is higher at $2.21. This leads to an ESP of -2.26% for Lockheed Martin.

Zacks Rank #3 (Hold): Lockheed Martin’s Zacks Rank #3 decreases the predictive power of the ESP.

We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -2.26% combined with a Zacks Rank # 3 lowers the possibility of an earnings surprise.

Other Stocks to Consider

Here are other companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.

The Boeing Company (BA - Analyst Report), Earnings ESP of +1.27% and Zacks Rank #2 (Buy).

Embraer SA (ERJ - Analyst Report), Earnings ESP of +6.35% and Zacks Rank #3 (Hold).

General Dynamics Corp. (GD - Analyst Report), Earnings ESP of +0.61% and Zacks Rank #3 (Hold).
 

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