Should Lockheed Stock Be in Your Portfolio Ahead of Q3 Earnings Report?

Lockheed Martin Corporation LMT is slated to release third-quarter 2024 results on Oct. 22, before the opening bell.

The Zacks Consensus Estimate for revenues is pegged at $17.28 billion, implying 2.4% growth from the year-ago quarter's reported figure. The consensus mark for third-quarter earnings is pegged at $6.43 per share, suggesting a 5% decline from $6.77 reported in the prior-year quarter. The bottom-line estimate has inched up 0.5% in the past 60 days.

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LMT, America’s largest defense contractor, has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.46%.

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Earnings Whisper for LMT

Our proven model predicts 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 chances of an earnings beat, which is the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Lockheed has a Zacks Rank #3 and an Earnings ESP of +2.46%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping LMT’s Upcoming Q3 Results

A potential solid sales improvement from each of LMT’s four business segments is likely to have bolstered the company’s top-line performance.

Aeronautics to Post Solid Sales

The Aeronautics segment, which primarily manufactures advanced, combat-proven jets, and contributes almost 40% to the company’s top line, is likely to deliver impressive third-quarter results.

A ramp-up in the production of the F-16 program, along with higher sales volume from production and sustainment contracts for the F-35 program, is likely to have bolstered this segment’s top line.

The Zacks Consensus Estimate for the Aeronautics unit’s third-quarter revenues is pegged at $6,764.8 million, indicating a 0.7% rise from the prior-year period’s reported figure.

Impressive Projections From Other Segments

The remaining three segments are also projected to have performed favorably in the to-be-reported quarter.

Higher sales volume from the hypersonic development programs, along with Fleet Ballistic Missile (FBM), transport layer and other space exploration programs must have boosted the Space segment’s top line.  

The Zacks Consensus Estimate for the segment’s revenues is pinned at $3,174 million, indicating a 2.3% improvement from the prior-year quarter’s reported number.

LMT’s Missiles and Fire Control (“MFC”) segment provides critical missile defense support to the United States and foreign allies. A higher sales volume, resulting from the production ramp-up of the Guided Multiple Launch Rocket Systems and Long Range Anti-Ship Missile programs, is likely to have benefited this unit’s quarterly sales performance.

The Zacks Consensus Estimate for MFC’s third-quarter revenues is currently pegged at $3,116.7 million, indicating 6% growth from the top line recorded a year ago.

Higher sales volume from the Sikorsky unit, particularly driven by CH-53K and Blackhawk helicopters, is likely to have bolstered the Rotary and Mission Systems (“RMS”) segment’s sales in the quarter under review.

The solid production ramp-up of this unit’s laser systems portfolio and higher sales volume of radar might have also contributed favorably to RMS’ third-quarter top line.

The Zacks Consensus Estimate for the unit’s revenues is currently pegged at $4,203.1 million, indicating a 2% improvement from the top line registered a year ago.

Outlook for LMT’s Q3 Bottom-Line

Higher interest expenses remain a headwind for the majority of U.S. companies, with Lockheed being no exception. With the Federal Reserve having cut the nation’s interest rate in the second half of September, notable interest expenses can be expected to have weighed on LMT’s third-quarter earnings.

Our model estimate for third-quarter interest expenses is $249.8 million, reflecting a solid 5.4% increase year over year.  

During the first quarter of 2024, LMT recognized a reach-forward loss of $100 million associated with a classified missile program at its MFC unit. This, in turn, adversely impacted this unit’s operating profit in the second quarter as well. With a potential loss of $350 million associated with this program, LMT might have also incurred a notable loss in its MFC unit in the third quarter. This, in turn, is likely to have adversely impacted its margin performance and, thereby, bottom-line growth.

Also, the unfavorable cost pressure faced by its Sikorsky business might have had affected LMT’s overall earnings performance in the third quarter, outweighing the favorable impacts of solid top-line growth.

Price Performance & Valuation

Lockheed’s shares have exhibited an upward trend, gaining a notable percentage over the year-to-date period. Specifically, the stock has risen 33.5% year to date, outperforming the Zacks aerospace-defense industry’s decline of 7.3%.

YTD Performance

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As evident from the image, other notable stocks from the same industry have also rallied year to date and comfortably outpaced the industry’s performance. Shares of L3Harris Technologies LHX, General Dynamics GD and Textron TXT have rallied 16.5%, 15.6% and 9.3%, respectively.  

From a valuation perspective, LMT is trading at a premium when compared to its industry. Currently, LMT is trading at 21.39X forward 12-month earnings, which is higher than the industry’s forward earnings multiple of 19.29. Also, its five-year median is 15.82X. So, the company’s valuation also looks stretched compared with its own range.

LMT’s Price-to-Earnings (forward 12 Months)

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Investment Thesis

Widespread hostilities engulfing the global defense map in recent times have prompted nations worldwide to ramp up their defense arsenal significantly. This has been acting as a solid growth catalyst for defense contractors like Lockheed in the form of solid contract wins. We may thus expect LMT’s third-quarter results to duly reflect this in terms of notable revenue growth.

Backed by its solid top-line prospects, the company has been offering notable rewards to its shareholders. Impressively, LMT’s dividend yield of 2.08% outpaces that of the S&P 500 (1.22%).

However, persistently high interest expenses remain a major headwind for the company’s near-term bottom-line growth. These might have also contributed to LMT’s elevated leverage, as evident from its long-term debt-to-capital ratio, which came in quite higher than that of its peer group.

LMT’s Long-Term Debt-to-Capital

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Should You Buy LMT Stock Before Q3 Earnings Release?

Lockheed is less likely to disappoint with its third-quarter results, considering the recent upward revision in its earnings estimates, favorable Zacks Rank and a positive Earnings ESP. However, considering its premium valuation and elevated leverage, investors interested in this stock should wait until next Tuesday.  

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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