All things considered, one would have thought after Lockheed Martin Corporation (NYSE:LMT) topped its fourth quarter earnings and revenue estimates, LMT stock would have been trading notably higher. One would have been wrong, however.
Lockheed Martin stock barely budged following Monday morning’s Q4 announcement despite better-than-expected numbers as well as the solid 2018 outlook.
The stumbling block? Maybe it was the broad market’s sudden headwind, or maybe it was the fact that LMT stock was up more than 36% for the past year, and up nearly 12% just since Q3’s earnings release. There may not be any more room to run just yet.
Still, while circumstances may whittle its price down in the near future, Lockheed Martin stock is as a buy-on-the-dip name as much now as it’s ever been.
Lockheed Martin Earnings Recap
For the quarter ending in December, Lockheed Martin turned revenue of $15.14 billion into operating income of $4.30 per share. Analysts were calling for a top line of $14.73 billion and profits of $4.07 per share of LMT stock, on an operating basis.
The company earned $3.25 per share in the comparable quarter a year earlier, when it generated $13.75 billion in revenue.
On a GAAP basis, Lockheed Martin actually lost $642 million, or $2.25 per share, to reflect a one-time charge associated with recant changes in the United States tax code for corporations. That same tax-law overhaul, though, will make the defense contractor more profitable going forward that it would have otherwise been.
CEO Marillyn Hewson commented on the Q4 results:
“We delivered outstanding performance as we completed 2017, which enabled us to end the year with strong sales growth, $6.5 billion of cash from operations and a backlog of nearly $100 billion, while also returning over $4.0 billion to our shareholders.”
For the full year, LMT stock earned $13.33 per share on sales of $51.0 billion. Both were well up from the prior year’s figures.
Drilling Down
Missiles and fire control systems were a key growth engine last quarter, with sales growing 30% year-over-year to $2.3 billion. Aeronautics revenue was up almost 12% for the quarter.
Rotary and mission systems (helicopters and ships) sales grew 14% for the quarter in question, while sales of space related hardware fell 12% to $2.45 billion. Full-year growth was comparable to Q4’s results for all for key segments.
The shining star of Lockheed’s portfolio, of course, is its F-35 jet fighter.
It wasn’t always clear the plane would be a breadwinner. Cost overruns, delays and performance problems have been the norm. With the jet finally proving itself though, there’s a light at the end of the tunnel. For the quarter in question, Lockheed delivered 22 of the high-tech jets.
That was six more than it delivered during the fourth quarter of 2016, reflecting a ramp-up in capacity to build the super-fighter now that’s it’s been refined.
That’s just the beginning though. The United States Department of Defense says it’s looking to buy 2,456 F-35s over a 15-year span, spending a total of $391 billion to do so.
Looking Ahead for LMT Stock
Prior to the release of its fourth quarter numbers, analysts were collectively calling for sales of $51.17 billion, and income of $14.00 per share. Those figures, which didn’t factor in the benefit of recent tax cuts, will almost certainly change soon though, in light of Lockheed’s 2018 outlook.
For the fiscal year that just began, Lockheed is expecting revenue of between $50.0 billion and $51.5 billion, and earnings of between $15.20 and $15.50 per share of LMT stock. That translates into a forward-looking P/E of just a bit below 23.0, which isn’t exactly “cheap,” but cheap for a stock of Lockheed Martin’s caliber.
Just bear in mind that a huge chunk of the $100 billion backlog is for F-35 jets, and military customers can be fickle, particularly with a weapons system has been as frustrating as the F-35 has been up until this point.
On the other hand, the Department of Defense has already invested so much into the F-35, it can’t walk away now and leave that investment on the table.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
