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Will Lockheed Martin (LMT) Earnings Give in to Budget Cut?

Pentagon’s prime contractor Lockheed Martin Corp. (LMT) is set to release its third-quarter 2014 results before the opening bell on Tuesday, Oct 21. In the preceding quarter, Lockheed Martin delivered a positive 3.76% earnings surprise. The company currently has a Zacks Rank #3 (Hold). Let’s see how things are shaping up prior to this announcement.

Factors to Consider this Past Quarter

Lockheed Martin continued to prove its dominance be it as an artillery supplier, an aeronautics innovator, a space janitor or as a universal business organizer. Being the largest U.S. aerospace and defense contractor, it won a steady stream of orders from the different U.S. defense departments.

Lockheed Martin is also looking to bolster its satellite product coverage given the vital role satellites play in the military space. To that end, the company is increasingly investing in R&D and acquisitions.

Despite Lockheed Martin’s popularity as a manufacturer of fighter jets, notably the F-35, the company has also been known for its environmental stewardship. In recent times, the defense prime has engaged in many alternative energy ventures, comprising ocean energy projects, considering the diminishing budget scenario in the U.S. This is particularly helpful when the world is more concerned about climate change problems.

In spite of the all the positives, a tepid defense budget scenario seems to be haunting this defense contractor. Like any other defense major, dwindling budget continues to hit Lockheed Martin’s top line.

Earnings Whispers?

Our proven model does not conclusively show that Lockheed Martin is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at $2.73, while the Zacks Consensus is higher at $2.74. This results in an ESP of -0.37%.

Zacks Rank #3 (Hold): Lockheed Martin carries a Zacks Rank #3 (Hold), which when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies in the defense sector which you may consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Curtiss-Wright Corporation (CW) has an Earnings ESP of +2.30% and sports a Zacks Rank #1.

B/E Aerospace Inc. (BEAV) has an Earnings ESP of +1.74% and carries a Zacks Rank #1.

General Dynamics Corp. (GD) has an Earnings ESP of +0.52% and carries a Zacks Rank #2.

Read the Full Research Report on GD
Read the Full Research Report on LMT
Read the Full Research Report on CW
Read the Full Research Report on BEAV


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