Back to top

Analyst Blog

Zacks Equity Research

Lockheed Martin (LMT) Q1 Earnings: Is a Beat in Store?

NOC GD LMT LDOS

Trades from $3

Pentagon’s largest defense contractor, Lockheed Martin Corporation (LMT - Free Report) is set to release first-quarter 2017 results on Apr 25, before the opening bell.

In the prior quarter, the company reported a positive earnings surprise of 6.91%. It is worth noting that Lockheed Martin has outperformed the Zacks Consensus Estimate in all the trailing four quarters, the average positive surprise being 12.41%.

Let’s see how things are shaping up at the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Lockheed Martin is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Lockheed Martin has an Earnings ESP of +1.83%. This is because the Most Accurate estimate stands at $2.78, higher than the Zacks Consensus Estimate of $2.73. 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 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates.

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

Meanwhile, Lockheed Martin’s combination of a Zacks Rank #2 and +1.83% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than Expected Earnings?

Lockheed Martin made a mark this first quarter by successfully reducing the cost of its so-called “overtly expensive” F-35 program. Toward this end, the company bagged acontract worth $8.5 billion from the Department of Defense (“DoD”) for the production of 90 F-35 fighters, at a reduced price of 6-8%. It’s no surprise that President Trump’s continuous persuasion led to this speedy cost cut. However, the amount of cost cut was in line with management’s earlier announced plan of cost savings.

Meanwhile during the first quarter, the company received a $1.1 billion contract from the U.S. Navyfor providing recurring logistics support and sustainment services for F-35 Lightning II aircraft. Another one is the$750 million contract won from the Defense Logistics Agency for providing flight line spare parts.

Other notable deals during the quarter include two modification contracts worth $416.9 million, received by United Launch Services, LLC (ULS). ULS is a subsidiary of United Launch Alliance (“ULA”) — a Lockheed Martin and The Boeing Co. joint venture.

Moreover, management projected a 40% hike in its 2017 delivery numbers compared to the prior year. In line with this expectation, we may predict similar improved delivery numbers for the company in the first quarter as well.

On the other hand, the company announced earlier that it anticipates additional GPS III satellite orders during first half of the year.  It also hopes to finalize the Hellfire missile order that got stuck last year. We expect to receive further updates on these orders once Lockheed Martin reports its first quarter results.

However, the company’s Missile and Fire Control segment is expected to reflect a slightly lower-than-expected performance compared to the rest of the year, due to unfavorable timing of deliveries. Nevertheless, more deliveries are expected in the second half of 2017.

For the first quarter, the Zacks Consensus Estimate for earnings stands at $2.73 per share, up 5.86% year over year, while the revenue estimate is pegged at $11.26 billion, implying a 3.79% year-over-year decline.

Other Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Leidos Holdings, Inc. (LDOS - Free Report) is expected to report first-quarter 2017 results on May 4. The company has an Earnings ESP of +1.28% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman Corp. (NOC - Free Report) is expected to report first-quarter 2017 results on Apr 26. The company has an Earnings ESP of +0.35% and a Zacks Rank #2.

General Dynamics Corp. (GD - Free Report) is expected to report first-quarter 2017 results on Apr 26. The company has an Earnings ESP of +0.43% and a Zacks Rank #3.

Zacks’ 2017 IPO Watch List

Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.

One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>