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Will Solid Order Flow Aid Lockheed Martin (LMT) Q2 Earnings?

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Lockheed Martin Corp. (LMT - Free Report) is set to release second-quarter 2018 results on Jul 24, before the opening bell.

In the prior quarter, the company reported a positive earnings surprise of 20%. Lockheed Martin has outperformed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 7.45%.

Let's see how things are shaping up prior to this announcement.

Slew of Contract Wins

Being the largest defense contractor in the United States, Lockheed Martin enjoys a solid inflow of contracts from the Pentagon and its overseas clients, courtesy of its varied defense and military product offerings.

Among the contracts that Lockheed Martin won in the second quarter, the significant ones include a $1.1 billion foreign military sales (FMS) contract for manufacturing 16 F-16 V Block 70 aircraft and a $928 million contract for developing hypersonic conventional strike weapon.

Other notable contracts secured by the company in the soon-to-be reported quarter include the $736 million modification deal to support the F-35 Lightning II program, a $503 million modification contract for providing air vehicle initial spare parts in support of the F-35 program and a $451 million contract for providing Saudi Arabia with long-lead-time activities to support the construction of four Multi-Mission Surface Combatant ships.

Consequently, such steady flow of orders are likely to boost Lockheed Martin’s quarterly sales. In line with this, the Zacks Consensus Estimate for the company’s second-quarter sales is pegged at $12.75 billion, reflecting year-over-year rise of 0.5%.

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation Price and EPS Surprise | Lockheed Martin Corporation Quote

Other Factors at Play

Management at Lockheed Martin expects to deliver higher earnings in 2018, buoyed by lower tax rate, higher segment operating profit and increased sales outlook. We believe such year-over-year bottom-line improvement will get reflected in the company’s second-quarter results as well. In line with this, the Zacks Consensus Estimate for second-quarter earnings is pegged at $3.89 per share, reflecting a 20.4% increase year over year.

However, expectations for the company’s cash from operations are not very optimistic. Notably, Lockheed Martin’s cash from operations in the first quarter was significantly lower than last year, as a result of contributing $1.5 billion to the company’s pension trust. With the company's additional $3.5 billion of contribution planned for the end of the third quarter of 2018, cash from operations are expected to remain much lower than its previous results, during the yet-to-be reported quarter. In fact, management expects to witness cash out flow from operations in the second quarter.

Earnings Whispers

Our proven model does not show that Lockheed Martin is likely to beat earnings this quarter. That 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. That is not the case here as you will see below.

Zacks ESP: Lockheed Martin has an Earnings ESP of -0.03%. 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 #2, which increases the probability of earnings beat. But when combined with a negative earnings ESP, the Zacks Rank #2 makes surprise prediction difficult.

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

Stocks to Consider

Here are few companies in the Aerospace sector that have the right combination of elements to post an earnings beat this quarter.

Raytheon is expected to report second-quarter results on Jul 26. The company has an Earnings ESP of +1.10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright Corporation (CW - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank #2. The company is expected to report second-quarter results on Jul 25.

Embraer-Empresa Brasileira de Aeronautica (ERJ - Free Report) has an Earnings ESP of +26.12% and a Zacks Rank #3. The company is slated to release second-quarter results on Jul 27.

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