Why Is Lockheed (LMT) Up 3.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Lockheed Martin (LMT). Shares have added about 3.8% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Lockheed Martin Beats on Q2 Earnings, Hikes '19 View

Lockheed Martinreported second-quarter 2019 earnings of $5 per share, which surpassed the Zacks Consensus Estimate of $4.74 by 5.5%. The bottom line also improved 23.5% from $4.05 registered in the year-ago quarter. This year-over-year upside can be attributed to solid sales and operating profit growth.

Operational Highlights

In the reported quarter, net sales amounted to $14.43 billion, which outshined the Zacks Consensus Estimate of $14.16 billion by 1.9%. The reported figure also increased 7.7% from $13.40 billion recorded a year ago. Notably, all segments registered year-over-year growth in sales during the second quarter.

The company generated an operating profit of $2 billion compared with the year-ago quarter’s figure of $1.8 billion.

Backlog

Lockheed Martin ended the second quarter (on Jun 30, 2019) with $136.7 billion in the backlog, up 2.4% from $133.5 billion at the end of first quarter 2019. Of this, the Aeronautics segment accounted for $51.91 billion, while Rotary and Mission Systems contributed $32.31 billion. While Space Systems accounted for $26.23 billion, Missiles and Fire Control segment contributed $26.24 billion.

Segmental Performance

Aeronautics: Sales increased 4% year over year to $5.56 billion, primarily driven by higher net sales from the F-35 program owing to increased volume on production, development and sustainment contracts.

While operating profit improved 3% year over year to $592 million, operating margin came in flat at 10.7%.

Missiles and Fire Control: Quarterly sales surged 16% year over year to $2.41 billion owing to higher sales from tactical and strike missiles programs. Also, higher sales from sensors and global sustainment programs contributed to this unit’s top-line growth.

While operating profit increased 17% year over year to $327 million, operating margin expanded 20 basis points (bps) to 13.6%.

Rotary and Mission Systems: Quarterly sales of $3.77 billion increased 6% from the prior-year quarter on account of higher sales from integrated warfare systems and sensors programs. Also, higher sales volume from various training and logistics solutions (TLS) programs contributed to this segment’s overall sales growth.

Operating profit rose 1.8% year over year to $347 million, while operating margin contracted 40 bps to 9.2%.

Space Systems: Sales improved 11% year over year to about $2.70 billion in the second quarter. The uptick was driven by higher net sales from government satellite programs, Global Positioning System (GPS) III as well as strategic and missile defense programs.

Operating profit increased 5% to $288 million, while operating margin contracted 60 bps to 10.7% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $1.17 billion as of Jun 30, 2019, compared with $0.77 billion at the end of 2018. Long-term debt summed $12.64 billion, slightly higher than the prior year-end level of $12.60 billion.

Cash from operations at the end of second-quarter 2019 amounted to $3.33 billion compared with $0.56 billion a year ago.

During the reported quarter, the company repurchased 0.6 million shares for $219 million compared with the buyback of 1 million shares for $310 million a year ago.

Lockheed Martin paid dividends worth $622 million to its shareholders in the second quarter compared with the year-ago figure of $570 million.

Guidance

For 2019, Lockheed Martin raised its financial guidance. The company currently expects to generate revenues of $58.25-$59.75 billion compared with $56.75-$58.25 billion projected earlier. The Zacks Consensus Estimate for full-year revenues, pegged at $58 billion, lies just below the lower end of the company’s updated guidance.

Earnings per share for 2019 are currently anticipated to be in the $20.85-$21.15 range compared with $20.05-$20.35 guided earlier. The Zacks Consensus Estimate for the company’s full-year earnings, pegged at $20.52, lies much below the company’s updated guidance.

Additionally, in 2019, the company expects to generate cash from operations of more than $7.6 billion compared with the earlier projection of more than $7.5 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Lockheed has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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