LMT Is an Earnings Standout
April 29, 2018
Shares of Lockheed Martin (LMT), a global security and aerospace company and the No. 1 provider of weapons to the Pentagon, were unfairly and unwisely hammered this week despite another great financial report.
In the first quarter, the company brought in earnings of $4.02 a share, up from $2.69 a share last year and $0.62 ahead of the Street’s estimate, and revenue increased 3.8% to $11.64 billion, also beating the consensus at $11.24 billion. Three of its four segments sparkled:
- Aeronautics: Revenue grew 6.7% to $4.4 billion; operating margin up to 10.8 from 10.7
- Missiles: Revenue grew 8.3% to $1.68 billion; operating margin up to 15.6 from 9.6
- Rotary: Revenue grew 3.1% to $3.22 billion; operating margin up to 9.6 from 4.1
- Space: Revenue declined 3.3% to $2.34 billion; operating margin down to 11.3 from 12
On top of the strong results, management also upped its full-year guidance on earnings, revenue and operating profits. The company now expects earnings of $15.80-$16.10 a share, up from previous estimates of $15.20-$15.50, and 2018 revenue forecasts were revised $350 million higher to $50.35-$51.85 billion.
Cash Flow Concerns Weigh on Shares
What sent the shares lower was the fact that management didn’t hike LMT’s dividend, as they didn’t have enough confidence to increase their outlook on cash flow. This was the only major financial category that the company did not revise higher, and that single bit of news sent the stock swooning like a fighter jet coming in for the kill.
I don’t buy the notion that LMT will lose a substantial amount of investors just because its dividend yield is at 2.43% while the 10-year Treasury yield is hovering near 3%. In fact, I think what we saw was Wall Street going into tantrum mode and naturally, selling beget selling.
Unless you have issues with defense contractors on moral grounds, I think it’s nuts not to have some exposure here. In addition to increased domestic spending, the Trump administration is going to step up sales to America allies. So for long-term investors, this weakness could be providing an attractive opportunity in LMT.