Will Lockheed (LMT) Keep Its Earnings Streak Alive In Q2?

Lockheed Martin Corporation (NYSE:LMT) will release second-quarter 2016 financial results before the market opens on Jul 19, 2016. In the prior quarter, this largest defense contractor reported a positive earnings surprise of 2.79%. It is worth noting that Lockheed Martin has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 4.56%. Let’s see how things are shaping up at the company prior to this announcement.

This defense prime with a market cap of around $77.94 billion has seen its shares rise roughly 18% so far this year as against a 6% increase for the S&P 500 over the same period.

Why a Likely Positive Surprise?

Our proven model shows that Lockheed Martin is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.37%. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Lockheed Martin carries a Zacks Rank #3 (Hold), which when combined with a positive ESP makes us confident of an earnings beat.

The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

What is Driving the Better-Than-Expected Earnings?

Lockheed Martin enjoyed a steady inflow of follow-on orders from its leveraged presence in the U.S. Army, Air Force, Navy and IT programs in the second quarter of 2016. The company secured quite a few major contracts from the Pentagon as well as from foreign allies, helping it to remain in the limelight.

For the second quarter, the Zacks Consensus Estimate for earnings is $2.92 a share, down 0.68% year over year, while consensus revenues are pegged at $12.53 billion, implying 7.58% year-over-year growth.

Among the important contracts received last quarter was the Defense Logistics Agency’s $1.75 billion award in Jun 2016 for consumable and depot-level repairable components for various weapon systems of the U.S. military. The Pentagon’s prime contractor will provide the weapon components to the U.S. Army, Navy, Air Force and Marine Corps.

In the same month, Lockheed Martin announced that it has won a contract from the U.S. Army for work on Sensor Systems – Aerial Intelligence, Surveillance and Reconnaissance (“SS-AISR”). With an initial term of one year, the contract offers two one-year options and has been valued at $733 million.

Lockheed Martin continues to be a strong cash generator, helping it to take important cash deployment decisions. Following first-quarter buybacks, this defense behemoth has $3.1 billion remaining for future common share repurchases. This is consistent with its plan to have less than 300 million shares outstanding by the end of 2017 and repurchase shares worth $2 billion in 2016.

Other Stocks to Consider

Other stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat are as follows:

Northrop Grumman Corp. (NYSE:NOC) has an earnings ESP of +4.42% and a Zacks Rank #2. It is expected to report earnings before the market opens on Jul 27, 2016.

Raytheon Company (NYSE:RTN) has an earnings ESP of +17.07% and a Zacks Rank #2. It is expected to report earnings before the market opens on Jul 28, 2016.

Textron Inc. (NYSE:TXT) has an earnings ESP of +3.23% and a Zacks Rank #3. It is expected to report earnings before the market opens on Jul 22, 2016.

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