Wall Street expects a year-over-year increase in earnings on higher revenues when Lockheed Martin (LMT) reports results for the quarter ended June 2020. While this widely known consensus outlook is important in gauging the company’s earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.
The earnings report, which is expected to be released on July 21, 2020, might help the stock move higher if these key numbers are better than expectations. On the other hand, if they miss, the stock may move lower.
While the sustainability of the immediate price change and future earnings expectations will mostly depend on management’s discussion of business conditions on the earnings call, it’s worth handicapping the probability of a positive EPS surprise.
Zacks Consensus Estimate:
This aerospace and defense company is expected to post quarterly earnings of $5.71 per share in its upcoming report, which represents a year-over-year change of +14.2%.
Revenues are expected to be $15.24 billion, up 5.6% from the year-ago quarter.
Estimate Revisions Trend:
The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts.
How Have the Numbers Shaped Up for Lockheed?
For Lockheed, the Most Accurate Estimate is the same as the Zacks Consensus Estimate, suggesting that there are no recent analyst views that differ from what has been considered to derive the consensus estimate. This has resulted in an Earnings ESP of 0%.
On the other hand, the stock currently carries a Zacks Rank of #3.
So, this combination makes it difficult to conclusively predict that Lockheed will beat the consensus EPS estimate.
Does Earnings Surprise History Hold Any Clue?
While calculating estimates for a company’s future earnings, analysts often consider to what extent it has been able to match past consensus estimates. So, it’s worth taking a look at the surprise history for gauging its influence on the upcoming number.
For the last reported quarter, it was expected that Lockheed would post earnings of $5.76 per share when it produced earnings of $6.08, delivering a surprise of +5.56%.
Over the last four quarters, the company has beaten consensus EPS estimates four times.
In June, Lockheed Martin was awarded 27 contracts valued $3.2B funds obligated on award standing at $2.4B or 75%.
At $1.1B, the F-35 was the highest contributor to defense sales. Almost $730 million provides for the delivery order for five F-35A aircraft, one F-35B, and four F-35C aircraft while the remainder provides for technical services and long-lead materials.
By far the biggest contract Lockheed Martin received during the month was a foreign military sales contract for the PAC-3 for incidental services, hardware, facilities, equipment, and all technical, planning, management, manufacturing, and testing efforts to produce Phased Array Tracking Radar to Intercept on Target Advanced Capability-3 missiles. The Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-Three (PAC-3) program is an air-defense, guided missile system with long-range, medium- to high-altitude, all-weather capabilities. It is designed to counter tactical ballistic missiles, cruise missiles, and advanced aircraft.
For the MH-60 Romeo Seahawk, Lockheed Martin received a $370 million contract to develop software and hardware solutions for India, which was cleared for the purchase of 24 Romeo Seahawks last year. The helicopters with anti-surface, anti-submarine warfare, search and rescue missions’ capabilities provide a key piece on India’s presence in the region where China is intensifying its grip.
In June, foreign military sales accounted for almost 43% or $1.37B of the contract awards driven by the PAC-3 contract. The US accounted for 27% of the contracted value, followed by India and Italy accounting for 12% each. The remainder came from South Korea. Month-over-month contract awards jumped by $500 million bringing the H1 2020 contract awards to almost $30B of which $19.5B was obligated at award. Quarter-over-quarter contract awards jumped by $700 million.
Conclusion:
During the month we saw contract awards increase and quarter-over-quarter defense contracts awards saw an increase. Overall, what I am liking about Lockheed Martin is the consistency in winning contracts around $15B in Q1 and roughly $15B in Q2. Lockheed Martin has a highly versatile product line up and that showed with fighter jet sales, contracts to support surface-to-air missiles, contracts in support of helicopters with anti-surface, anti-submarine ware and search and rescue capabilities as well as 44 M270A2 Multiple Launch Rocket Systems. There simply are a lot of platforms that Lockheed Martin can book wins for. The F-35 had its problems and still has high operation costs, but its importance to Lockheed Martin is clear.
Bottom Line:
Earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help some stocks gain despite an earnings miss.
That said, betting on stocks that are expected to beat earnings expectations do increase the odds of success. Therefore, it is worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they have reported.
Lockheed does not appear a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.
Lockheed Martin LONG (Buy)
ENTER AT: 373.81
T.P_1: 395.97
T.P_2: 441.82
T.P_3: 476.13
S.L: 340.67
