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Will Poor Operational Show Hit Lockheed (LMT) in Q3 Earnings?

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Lockheed Martin Corporation (LMT - Free Report) is slated to release third-quarter 2021 results on Oct 26, before the opening bell.

Solid sales performance across segments is expected to have generated significant growth for the company in the soon-to-be-reported quarter. However, charges related to the performance issues faced by a few programs might have hurt its earnings growth in the third quarter.

Let's see how things have shaped up prior to this announcement.

Aeronautics a Key Catalyst

The Aeronautics segment, which primarily manufactures advanced, combat-proven jets and comprises almost 40% of the company’s top line, is expected to have once again acted as a major growth catalyst. Lockheed Martin has a history of delivering a significant number of military jets every quarter. We expect a similar trend in the yet-to-be-reported quarter as well which along with solid production volume for the F-35 and F-16 programs is expected to have boosted top-line growth for the Aeronautics business division.

The Zacks Consensus Estimate for this unit’s revenues stands at $7,053 million, indicating a 5.6% improvement from the prior-year reported figure.

MFC Unit: Another Growth Driver

We expect Lockheed Martin’s Missiles and Fire Control (MFC) segment, which provides critical missile defense support to the United States and foreign allies, to have also delivered a strong operational performance in the soon-to-be-reported quarter.

In particular, increased production volume for tactical and strike missile programs is expected to have boosted the MFC unit’s top-line performance in the third quarter.

The Zacks Consensus Estimate for MFC segment revenues is currently pegged at $3,063 million, implying a 3.1% increase from the year-ago reported figure.

Q3 Expectations

Solid revenue growth in each of the company’s business segments is likely to have boosted Lockheed’s overall top line in the to-be-reported quarter. The Zacks Consensus Estimate for the company’s third-quarter revenues stands at $17.15 billion, indicating a 4% increase from the year-earlier reported figure.

Despite expectations of a strong sales performance in the yet-to-be-reported quarter, a poor operating performance is likely to have weighed on Lockheed's Q3 earnings growth. In particular, the company is expected to have incurred some significant charges related to performance issues in a few programs in its Aeronautics and Rotary and Missions business divisions. This must have hurt its operating profit, thereby dragging down its bottom-line figure in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for the defense giant’s third-quarter earnings is pegged at $2.63 per share, suggesting a decline of 57.9% from the prior-year reported number.

In March 2021, Aerojet Rocketdyne’s (AJRD - Free Report) shareholders approved its merger agreement with Lockheed, a transaction projected to be completed in the fourth quarter of 2021. We expect Lockheed to provide an update on the progress of this acquisition when it releases third-quarter results.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Lockheed this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

Lockheed has an Earnings ESP of -27.61% and a Zacks Rank #4. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of defense companies you may want to consider, as these have the right combination of elements to post an earnings beat this season:

Transdigm Group (TDG - Free Report) has an Earnings ESP of +2.16% and a Zacks Rank #2.

CAE Inc (CAE - Free Report) has an Earnings ESP of +9.46% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.