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Why Is Lockheed Martin (LMT) Up 5.2% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Lockheed Martin Corporation (LMT - Free Report) . Shares have added about 5.2% in that time frame, outperforming the market.

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

Lockheed Beats on Q2 Earnings, Raises 17' EPS View

Lockheed Martin reported second-quarter 2017 earnings from continuing operations of $3.23 per share, beating the Zacks Consensus Estimate of $3.10 by 4.2%. Earnings also surpassed the year-ago period’s bottom-line figure by 10.2%.

Operational Highlights

In the reported quarter, total revenue came in at $12.69 billion, which surpassed the Zacks Consensus Estimate of $12.47 billion by 1.8%.

Moreover, the company’s revenues increased 6.6% from $11.56 billion a year ago. Notably, all segments registered year-over-year growth in sales, except Missiles and Fire Control.

Backlog

Lockheed Martin ended the second quarter (on Jun 26, 2017) with $92.1 billion in backlog, down 1.5% from $93.5 billion at the end of the first quarter. Of this, the Aeronautics segment accounted for $32 billion while Rotary and Mission Systems contributed $26.7 billion. Also, $18.4 billion came from Space Systems, and $15 billion from Missiles and Fire Control.

Segmental Performance

Aeronautics: Sales increased 19% year over year to $5.2 billion, driven by higher net sales for the F-35, C-130 as well as C-5 programs.

Operating profit also advanced 15% year over year to $550 million, while operating margin dropped 40 basis points (bps) to 10.5%.

Missiles and Fire Control: Quarterly sales dropped 3% year over year to $1.6 billion due to slower sales from air and missile defense programs.

Operating profit increased 6% year over year to $268 million and operating margin expanded 130 bps to 16.4%.

Rotary and Mission Systems: Quarterly sales of $3.4 billion increased 3% from the prior-year quarter on higher revenues from Sikorsky as well as C4ISR & undersea systems & sensors (C4USS) programs.

Operating profit improved 26% year over year to $254 million, while operating margin expanded 130 bps to 7.4%.

Space Systems: Sales increased 9% year over year to about $2.4 billion in the second quarter, driven by sales improvement owing to the company’s increased interest in Atomic Weapons Establishment Venture.

Operating profit dropped 25% to $256 million while operating margin contracted 470 bps to 10.6% in the quarter.

Financial Condition

Cash and cash equivalents were $2.45 billion as of Mar 26, 2017 compared with $2.22 billion at the end of the first quarter. Long-term debt was $14.28 billion, almost in line with the first-quarter end level.

Cash from operations at the end of the second quarter was $3.2 billion compared with the first quarter’s level of $3.1 billion.

During the quarter, the company repurchased 1.9 million shares for $500 million compared with the buyback of 2.1 million shares for $501 million a year ago. The company paid dividends worth $525 million to its shareholders compared with the year-ago period’s level of $501 million.

Guidance

For 2017, Lockheed Martin has raised its financial guidance. The company expects to generate revenues in the range of $49.8–$51.0 billion, higher than the earlier provided projection of $49.5–$50.7 billion.

On the bottom-line front, the company now expects its earnings per share to be in the range of $12.30–$12.60 during 2017, higher than the earlier-announced guidance range of $12.15–$12.45.

However, the company has retained its 2017 expectations for cash from operations. Lockheed Martin continues to expect more than $6 billion cash from operations.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.

Lockheed Martin Corporation Price and Consensus

VGM Scores

At this time, Lockheed Martin's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, 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 C. 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 growth investors than those looking for value and momentum.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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