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Why Is Lockheed (LMT) Up 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lockheed Martin (LMT - Free Report) . Shares have added about 2.8% in that time frame, underperforming the S&P 500.

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

Lockheed Martin Beats on Q3 Earnings, Ups 2020 EPS View

Lockheed Martin reported third-quarter 2020 earnings from continuing operations of $6.25 per share, which surpassed the Zacks Consensus Estimate of $6.07 by 3%. The bottom line also improved 10.4% from the year-ago quarter’s $5.66.  

This year-over-year upside can be attributed to higher sales as well as operating profit.

Operational Highlights

In the reported quarter, net sales amounted to $16,495 million, which outshined the Zacks Consensus Estimate of $16,206 million by 1.8%. The reported figure also increased 8.7% from $15,171 million a year ago, driven by sales growth in all its segments.

Backlog

Lockheed Martin ended the third quarter (on Sep 27, 2020) with $150.4 billion in backlog, up 4.4% from $144 billion at the end of 2019. Of this, the Aeronautics segment accounted for $57.8 billion, while Rotary and Mission Systems contributed $36.2 billion. Space Systems contributed $26.3 billion while $36.2 billion came from the Missiles and Fire Control segment.

Segmental Performance

Aeronautics: Sales increased 8% year over year to $6.68 billion, primarily driven by higher net sales from the F-35 programs. Also, higher volume of classified development contracts contributed to sales growth at this unit.

The segment’s operating profit increased 6% year over year to $705 million, whereas operating margin contracted 20 basis points (bps) to 10.6%.

Missiles and Fire Control: Quarterly sales improved 14% year over year to $2.97 billion owing to higher sales from tactical and strike missile programs as well as integrated air and missile defense programs.

The segment’s operating profit increased 16% year over year to $405 million and operating margin improved 20 bps to 13.6%.

Rotary and Mission Systems: Sales of $4 billion improved 8% from the prior-year quarter on account of higher sales in Sikorsky helicopter programs, for various training and logistics solutions (TLS) programs as well as integrated warfare systems and sensors (IWSS) programs.

The segment’s operating profit improved 18% year over year to $404 million. Operating margin expanded 90 bps to 10.1%.

Space Systems: Sales rose 6% year over year to about $2.85 billion in the third quarter. The uptick was driven by government satellite programs as well as strategic and missile defense programs.

The segment’s operating profit declined 20% to $248 million. Operating margin contracted 300 bps to 8.7% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $3.59 billion as of Sep 27, 2020, compared with $1.51 million at the end of 2019. Long-term debt was $11.68 billion, higher than the prior-year-end level of $11.40 billion.

Cash from operations at the end of third-quarter 2020 amounted to $6.38 billion compared with $5.82 billion a year ago.

During the reported quarter, the company repurchased 0.2 million shares for $85 million compared with the buyback of 0.6 million shares for $210 million in the year-ago quarter. The $85 million spend in the third quarter included $26 million for shares repurchased in the second quarter of 2020.

Lockheed Martin paid out dividends worth $672 million to its shareholders in the third quarter compared with the year-ago quarter’s figure of $621 million. Moreover, the company increased its quarterly dividend by 20 cents per share to $2.60 per share, beginning with the dividend payment in the fourth quarter of 2020.

Lockheed Martin also increased its share repurchase authority by $1.3 billion, with $3 billion in total remaining authorization for future repurchases of common stock under the program as of Sep 27, 2020.

Guidance

For 2020, Lockheed Martin has partially raised its financial guidance. The company currently expects to generate revenues of $65.25 billion compared with the range of $63.50-$65 billion projected earlier. The Zacks Consensus Estimate for full-year revenues, pegged at $64.76 billion, lies below the updated guidance.

Earnings per share are currently anticipated to be $24.45, higher than the earlier range of $23.75-$24.05 for 2020. The Zacks Consensus Estimate for the company’s full-year earnings, pegged at $24.13, is lower than the guidance range.

However, the company continues to expect its full-year cash generation from operations to be greater than or equal to $8 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Lockheed has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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


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