Lockheed Martin (LMT - Free Report) just reported its most profitable quarter on record when they released earnings April 23rd. LMT’s EPS results beat estimates by 40% illustrating 49% year-over-year growth. Revenues beat estimates by 13% up 23% from the same quarter last year. Since the earnings release Lockheed is up 4.9%.
This quarter’s profits were driven primarily by the growth in LMT’s Aeronautics division, making up 39% of sales, which was able to deliver 26 F-35s this past quarter almost doubling the deliveries from Q1 last year. This segment grew 27% year-over-year. Lockheed Martin’s Missiles and Fire Control segment grew 40% from the March quarter last year, still LMT’s smallest segment but helping to further diversify their portfolio of products.
The firm has improved operational efficiencies across the board. Expanding operating margins from 14.8% Q1 last year to15.9% it reported this past quarter.
The $133 billion backlog that Lockheed Martin disclosed this last quarter is the largest since the firm’s inception. This is illustrating a significant amount of locked in future income. This backlog is expected to produce mid-single digit sales growth over the next 2.4 years, according to Jefferies Equity Research.
This firm is expected to improve earnings by 15.3% for 2019 and sales are expected to increase by 7.24%. Sell-side analysts have adjusted earnings up for 2019 and 2020 based off of the great performance that they demonstrated to investors in Q1, propelling LMT into a Zacks Rank #1 (Strong Buy).
Lockheed Martin derives most of its income from government military contracts which allows investors to be more confident about sustainable sales.
Even with Lockheed Martin’s outstanding Q1 performance its valuation multiples are still looking favorable. LMT (blue) is trading at 15.24x forward P/E compared to the aerospace & defense industry’s (red) average forward P/E of 17.42x.
LMT has been able to boast an astounding return on equity (ROE) of 415%. This ROE is being driven by a high asset turnover, above average net profit margins, but unfortunately its huge amount of financial leverage is also driving this ROE. The more levered a company is the more volatile the stock typically is but since LMT is able to lock in sales through military contracts it allows the volatility to be somewhat muted.
LMT is currently trading 8.5% off its high in early 2018 but the fundamentals driving this stock have never looked better. I expect this stock will make new highs this year if the economy is able to stay afloat.