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Lockheed (LMT) Down 5.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Lockheed Martin (LMT - Free Report) . Shares have lost about 5.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lockheed due for a breakout? 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 Q3 Earnings Beat, ‘18 EPS View Up

Lockheed Martin reported third-quarter 2018 earnings of $5.14 per share, beating the Zacks Consensus Estimate of $4.32 by 19%. The bottom line also improved 54.8% from the year-ago quarter’s figure of $3.32.

Operational Highlights

In the reported quarter, total revenues came in at $14.32 billion, which surpassed the Zacks Consensus Estimate of $13.15 billion by 8.9%.

Moreover, the company's revenues increased 16% from $12.34 billion a year ago. Notably, all segments registered year-over-year growth in sales.

Backlog

Lockheed Martin ended the third quarter (on Sep 30, 2018) with $109.2 billion in backlog, up a 4% from $105 billion at the end of second-quarter 2018. Of this, the Aeronautics segment accounted for $36.77 billion, while Rotary and Mission Systems contributed $29.21 billion. Also, $23.28 billion came from Space Systems and $19.93 billion from the Missiles and Fire Control segment.

Segmental Performance

Aeronautics: Sales increased 19.6% year over year to $5.64 billion, primarily driven by higher net sales from the F-35, F-16 and F-22 programs.

Operating profit advanced 17% year over year to $600 million, while operating margin contracted 30 basis points (bps) to 10.6%.

Missiles and Fire Control: Quarterly sales rose 16.1% year over year to $2.27 billion owing to higher sales for tactical and strike missiles programs as well as sensors and global sustainment programs.

While operating profit increased 11.4% year over year to $332 million, operating margin contracted 60 bps to 14.6%.

Rotary and Mission Systems: Quarterly sales of $3.85 billion increased 14.4% from the prior-year quarter, courtesy of higher sales for integrated warfare systems and sensors (IWSS) programs as well as C4ISR programs. Also higher sales for Sikorsky helicopter programs drove the segment’s top line.

Operating profit improved 40.5% year over year to $361 million, while operating margin expanded 180 bps to 9.4%.

Space Systems: Sales improved 10.8% year over year to about $2.56 billion in the third quarter. The uptick was driven by higher net sales for government satellite, strategic and missile defense programs as well as the Orion program.

Operating profit increased 33.8% to $293 million, while operating margin expanded 200 bps to 11.5% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $0.90 billion as of Sep 30, 2018 compared with $1.18 billion at the end of the second quarter. Long-term debt was $13.49 billion, almost in line with the second-quarter end level.

Cash from operations at the end of the third quarter was $0.9 billion compared with the year-ago level of $4.96 billion.

During the quarter under review, the company repurchased 0.6 million shares for $216 million compared with the buyback of 1.6 million shares for $500 million a year ago. Lockheed Martin increased its share repurchase authority by $1 billion with $3.7 billion in total remaining authorization for future share repurchases under the program, as of Sep. 30, 2018.

The company paid dividends worth $569 million to its shareholders compared with the year-ago period's figure of $522 million.

Guidance

For 2018, Lockheed Martin has updated its financial guidance. The company currently expects to generate revenues of $53 billion compared with prior expected range of $51.6-$53.1 billion.

On the bottom-line front, the company now expects to deliver earnings per share of $17.50, higher than earlier range of $16.75-$17.05.

The company has also increased its 2018 expectations for cash from operations. Lockheed Martin continues to expect more than $3.4 billion cash from operations compared with earlier projections to generate more than $3.3 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.42% due to these changes.

VGM Scores

At this time, Lockheed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Lockheed has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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