We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
GD vs. LMT: Which is A Better Buy Ahead of Q4 Earnings?
Read MoreHide Full Article
On Jan 19, Defense Secretary Jamis Mattis finally unveiled the highly awaited National Defense Strategy for 2018. Speaking at the Johns Hopkins University School of Advanced International Studies, Mattiss warned that the United States’ competitive edge has “eroded in every domain of warfare” and is “continually eroding” even now.
Mattiss went on to outline a new strategy which focuses on cementing alliances, improving coordination with the State Department and elicit steady financial backing from Congress. One of the major priorities of the new strategy was to increase investments in various areas ranging from nuclear and cyber warfare to space operations and capabilities.
This new strategy is another reminder that improving the capabilities of the defense services is at the top of the Trump administration’s agenda. The document has also been released at a time when major defense stocks are preparing to report earnings numbers.
Other defense stocks reporting earnings this month include Northrop Grumman Corporation (NOC - Free Report) and The Boeing Company (BA - Free Report)
Price Performance
In terms of price performance, Lockheed Martin is a clear winner. Both stocks have underperformed the broader industry, which has gained 13.4% over the last three months. However, Lockheed Martin has gained 6% over this period, clearly outperforming General Dynamics which has lost -1.4%.
Valuation
Since the defense sector is capital intensive, the most appropriate ratio to value companies is EV/EBITDA. Additionally, it is the ideal metric to compare two companies within the same industry. Further, it is not impacted by differing capital structures and excludes the impact of non-cash expenses.
Coming to the two defense stocks, with an EV/EBITDA value of 15.64, Lockheed Martin is overvalued relative to the rest of the industry. General Dynamics holds the edge here with a lower EV/EBITDA value of 13.55, making it undervalued relative to the rest of the industry, which has an EV/EBITDA value of 13.68.
Return on Capital
Return on capital or return on capital employed is a suitable metric to compare the profitability of companies relying on the quantum of capital that they utilize. The capital utilized or employed is the total capital that the company requires to return a profit.
This ratio is particularly useful when the objective is to compare the performance of companies which belong to capital intensive sectors. This is because unlike other profitability metrics like return on equity (ROE), return on capital takes into account debt and other related liabilities.
Such an approach ensures a more holistic picture of companies which utilize a significant amount of debt. Here, Lockheed Martin is clearly ahead with a return on equity level of 23.3%, which is higher than the General Dynamic’s level of 21.6%.
Debt to Assets
The debt to assets ratio or debt ratio is utilized to gauge the amount of leverage a company utilizes. A higher ratio necessarily indicates a higher amount of leverage, which raises the financial risk involved. Industries which are capital intensive in nature usually have a relatively higher debt ratio.
Lockheed Martin is saddled with a relatively poor debt-to-assets level of 29.2%. This round easily goes to General Dynamics, which has a debt-to-assets ratio of around 14%, which is lower than Lockheed Martin’s as well as that of the broader industry, which has a debt-to-assets ratio of 17.1%.
Dividend Yield
Lockheed Martin’s dividend yield over the last one year period is 2.41%. With a dividend yield of 1.6%, General Dynamics’ shareholders earn a lower dividend yield than those of Lockheed Martin as well as the broader industry, which has an average dividend yield of 1.7%.
Earnings History, ESP and Estimate Revisions
Considering a more comprehensive earnings history, Lockheed Martin has delivered earnings surprises in three of the four preceding quarters. On the other hand, General Dynamics has delivered earnings surprises in all of the four preceding quarters. While General Dynamics has an average earnings surprise of 3.4%, Lockheed Martin stands out with an average earnings surprise of 4.9%.
When considering Earnings ESP values, Lockheed Martin holds the edge with a reading of +0.31%, higher than General Dynamics’ figure of +0.19%. At the same time, Lockheed Martin’s earnings estimate for the current year has increased by 3.8% over the last 30 days, higher than General Dynamics’ level of 3.7%.
Conclusion
Our comparative analysis shows that there is little to choose between the stocks when considering ranks, since both carry a Zacks Rank #2. But General Dynamics does hold an edge over Lockheed Martin when considering valuation and debt ratios.
However, Lockheed Martin is superior when considering price performance, dividend yield, estimate revisions and a more detailed earnings history. What clinches the case for Lockheed Martin over General Dynamics is a higher ESP value, which makes it a better choice ahead of upcoming earnings results.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius. Click for details >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
GD vs. LMT: Which is A Better Buy Ahead of Q4 Earnings?
On Jan 19, Defense Secretary Jamis Mattis finally unveiled the highly awaited National Defense Strategy for 2018. Speaking at the Johns Hopkins University School of Advanced International Studies, Mattiss warned that the United States’ competitive edge has “eroded in every domain of warfare” and is “continually eroding” even now.
Mattiss went on to outline a new strategy which focuses on cementing alliances, improving coordination with the State Department and elicit steady financial backing from Congress. One of the major priorities of the new strategy was to increase investments in various areas ranging from nuclear and cyber warfare to space operations and capabilities.
This new strategy is another reminder that improving the capabilities of the defense services is at the top of the Trump administration’s agenda. The document has also been released at a time when major defense stocks are preparing to report earnings numbers.
With General Dynamics Corporation (GD - Free Report) and Lockheed Martin Corporation (LMT - Free Report) scheduled to report on Jan 24 and Jan 29, respectively, this may be a good time to consider which of these is a better stock. Both these stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other defense stocks reporting earnings this month include Northrop Grumman Corporation (NOC - Free Report) and The Boeing Company (BA - Free Report)
Price Performance
In terms of price performance, Lockheed Martin is a clear winner. Both stocks have underperformed the broader industry, which has gained 13.4% over the last three months. However, Lockheed Martin has gained 6% over this period, clearly outperforming General Dynamics which has lost -1.4%.
Valuation
Since the defense sector is capital intensive, the most appropriate ratio to value companies is EV/EBITDA. Additionally, it is the ideal metric to compare two companies within the same industry. Further, it is not impacted by differing capital structures and excludes the impact of non-cash expenses.
Coming to the two defense stocks, with an EV/EBITDA value of 15.64, Lockheed Martin is overvalued relative to the rest of the industry. General Dynamics holds the edge here with a lower EV/EBITDA value of 13.55, making it undervalued relative to the rest of the industry, which has an EV/EBITDA value of 13.68.
Return on Capital
Return on capital or return on capital employed is a suitable metric to compare the profitability of companies relying on the quantum of capital that they utilize. The capital utilized or employed is the total capital that the company requires to return a profit.
This ratio is particularly useful when the objective is to compare the performance of companies which belong to capital intensive sectors. This is because unlike other profitability metrics like return on equity (ROE), return on capital takes into account debt and other related liabilities.
Such an approach ensures a more holistic picture of companies which utilize a significant amount of debt. Here, Lockheed Martin is clearly ahead with a return on equity level of 23.3%, which is higher than the General Dynamic’s level of 21.6%.
Debt to Assets
The debt to assets ratio or debt ratio is utilized to gauge the amount of leverage a company utilizes. A higher ratio necessarily indicates a higher amount of leverage, which raises the financial risk involved. Industries which are capital intensive in nature usually have a relatively higher debt ratio.
Lockheed Martin is saddled with a relatively poor debt-to-assets level of 29.2%. This round easily goes to General Dynamics, which has a debt-to-assets ratio of around 14%, which is lower than Lockheed Martin’s as well as that of the broader industry, which has a debt-to-assets ratio of 17.1%.
Dividend Yield
Lockheed Martin’s dividend yield over the last one year period is 2.41%. With a dividend yield of 1.6%, General Dynamics’ shareholders earn a lower dividend yield than those of Lockheed Martin as well as the broader industry, which has an average dividend yield of 1.7%.
Earnings History, ESP and Estimate Revisions
Considering a more comprehensive earnings history, Lockheed Martin has delivered earnings surprises in three of the four preceding quarters. On the other hand, General Dynamics has delivered earnings surprises in all of the four preceding quarters. While General Dynamics has an average earnings surprise of 3.4%, Lockheed Martin stands out with an average earnings surprise of 4.9%.
When considering Earnings ESP values, Lockheed Martin holds the edge with a reading of +0.31%, higher than General Dynamics’ figure of +0.19%. At the same time, Lockheed Martin’s earnings estimate for the current year has increased by 3.8% over the last 30 days, higher than General Dynamics’ level of 3.7%.
Conclusion
Our comparative analysis shows that there is little to choose between the stocks when considering ranks, since both carry a Zacks Rank #2. But General Dynamics does hold an edge over Lockheed Martin when considering valuation and debt ratios.
However, Lockheed Martin is superior when considering price performance, dividend yield, estimate revisions and a more detailed earnings history. What clinches the case for Lockheed Martin over General Dynamics is a higher ESP value, which makes it a better choice ahead of upcoming earnings results.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>