LMT, LLL Earnings Due On Jan 29: Here Are Key Predictions

Textron (NYSE:TXT) kick-started Q4 earnings for the Defense space by beating estimates on Jan 24. A number of defense giants are expected to release their financial numbers this week.

As of Jan 25, 113 S&P 500 index members, accounting for 27.6% of the index’s total market capitalization, reported their quarterly results. Earnings for these index members increased 12.4% year over year on 6.5% higher revenues. In Q4, earnings for S&P 500 companies as a whole are expected to improve 11.2% on 5.4% revenue growth. Among the 16 Zacks sectors, 13 are expected to witness a year-over-year earnings improvement this season.

By the end of this week, we expect to have a clear picture about the performances of the defense companies as 121 of the index members are scheduled to release their quarterly results.

Coming to projections for the Aerospace sector, which constitute defense stocks, total Q4 earnings are expected to increase 7.5% year over year on 5.8% higher revenues, as of Jan 25. For more details on the quarterly performances, you can go through the latest Earnings Preview.

Defense stocks, which have been on a growth trajectory over the past couple of quarters, continued to witness a flourishing Q4 with President Trump’s favored stance toward increased spending on defense majors. In this regard, it is imperative to mention that America’s expansionary defense budget has been significantly providing a boost to the major defense contractors. According to a Bloomberg report, the United States increased missile defense spending by 25% to $9.9 billion in fiscal 2019. As a result, a steady flow of contracts from the Pentagon continued to provide impetus to the stocks. Defense contractors also received a string of key contracts from foreign allies of the United States, hinting at growing international market for weaponries.

Let’s take a look at the two defense majors — Lockheed Martin Corp. (NYSE:LMT) and L3 Technologies, Inc. (NYSE:LLL) — which are scheduled to release Q4 results before the opening bell on Jan 29.

Lockheed Martin delivered a positive earnings surprise of 18.98% in the last reported quarter. Also, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, the average being 13.92%.

Being a prominent defense contractor, Lockheed Martin continues to win significant contracts from the U.S. Defense Department and its allies. This, in turn, is likely to provide a boost to the company’s earnings in the quarter to be reported. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $4.39, mirroring a 2.1% improvement year over year.

We note that majority of these contracts were related to F-35 — the company’s largest program. On the revenue front, the Zacks Consensus Estimate does not reflect any improvement for the upcoming quarterly results.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. Impressively, Lockheed Martin constitutes that right combination. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lockheed Martin has an Earnings ESP of +4.20% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions (read more: Will F-35 Program Drive Lockheed Martin's Q4 Earnings?).

L3 Technologies reported in-line earnings during the last reported quarter. The company outperformed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 6.79%.

In October 2018, L3 Technologies and Harris Corporation (NYSE:HRS) announced the biggest ever defense merger approximately worth $33.5 billion, per The Economist. From the context of year-end results, the combined company is expected to generate net revenues of nearly $16 billion in fiscal 2018.

Considering this merger, the Zacks Consensus Estimate for L3 Technologies’ earnings is pinned at $2.66, mirroring a 13.2% year-over-year rise for the upcoming quarter.

L3 Technologies’ Earnings ESP of +1.19% and a Zacks Rank #3 make us confident about an earnings beat this quarter (read more: Is L3 Technologies Poised to Beat in Q4 Earnings?).

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>