Will F-35 Program Drive Lockheed Martin's (LMT) Q4 Earnings?

Lockheed Martin Corp.’s (NYSE:LMT) Aeronautics segment continues to witness solid orders for its varied product offerings from the Pentagon as well as international allies of the United States. The F-35 program should remain a major growth driver. We expect Lockheed Martin’s fourth-quarter 2018 results, scheduled for release on Jan 29, to duly reflect these factors.

The F-35 Program: A Key Catalyst

Keeping up with its usual trend, Lockheed Martin’s Aeronautics segment won a number of multi-million-dollar contracts in the fourth quarter. Such solid order flows are likely to boost the company’s backlog in the soon-to-be-reported quarter. In this regard, it is imperative to mention that majority of these contracts were related to F-35 — the company’s largest program.

In fact, higher production and sustainment volumes for the F-35 program have been providing a significant boost to the Aeronautics segment.

Impressively, management at the company predicted that increased production and sustainment volume on the F-35 program will boost its 2018 sales growth. Considering such predictions, we expect the F-35 program to consistently drive the Aeronautics unit’s top line as well as operating profit and the upcoming quarterly result to duly reflect this.

A View on Margins

Lockheed Martin’s management expects the company’s legacy programs to reflect solid margin improvement within the Aeronautics business unit. However, higher production volume for programs like F-35 tend to push up the production cost, which in turn may dent the segment’s margin.

What the Zacks Model Unveils

Our proven model shows that Lockheed Martin is likely to beat earnings in the fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen and the company possess both. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lockheed Martin has an Earnings ESP of +4.20% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are some companies in the Zacks Aerospace sector that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

L3 Technologies, Inc. (NYSE:LLL) is expected to report fourth-quarter 2018 results on Jan 29. The company has an Earnings ESP of +1.19% and a Zacks Rank #3.

Huntington Ingalls Industries, Inc. (NYSE:HII) is expected to report fourth-quarter 2018 results on Feb 14. The company has an Earnings ESP of +11.85% and a Zacks Rank #3.

A Recent Defense Release

Teledyne Technologies (NYSE:TDY) reported adjusted fourth-quarter 2018 earnings of $2.33 per share, which surpassed the Zacks Consensus Estimate of $2.19 by 6.4%. The bottom line also improved 27.3% from the year-ago quarter’s figure of $1.83.

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