## Lockheed Martin (LMT) Poised for Earnings Beat: Q3 2024 Preview
Lockheed Martin Corporation (LMT), the leading name in defense contracting, is gearing up to report its third-quarter 2024 earnings on October 22. Analysts are anticipating a strong performance, with revenue expected to climb on the back of solid demand across its business segments. However, while the top line appears promising, the bottom line might face some pressure from higher interest expenses and potential losses related to a classified missile program.
Despite these potential headwinds, Lockheed remains a robust performer, bolstered by a robust backlog of orders and a generous dividend yield. This article delves into the key factors shaping LMT’s Q3 results and assesses whether investors should buy the stock ahead of the earnings release.
Strong Revenue Growth Expected
The Zacks Consensus Estimate for Lockheed Martin’s third-quarter revenues is set at $17.28 billion, representing a 2.4% increase from the same period last year. This projected growth is fueled by robust demand for defense products and services globally. The company’s four key business segments – Aeronautics, Space, Missiles and Fire Control (MFC), and Rotary and Mission Systems (RMS) – are all expected to contribute to this positive top-line performance.
Aeronautics: F-16 and F-35 Boost
The Aeronautics segment, which manufactures advanced fighter jets, is poised to deliver particularly strong results. A ramp-up in production of the F-16 program, combined with higher sales volume from production and sustainment contracts for the F-35 program, is anticipated to significantly boost the segment’s top line. The Zacks Consensus Estimate for Aeronautics revenue in the third quarter is $6,764.8 million, reflecting a slight increase from the prior year.
Space: Hypersonics and Space Exploration Programs
Lockheed Martin’s Space segment is also projected to perform well, driven by increasing sales from hypersonic development programs, as well as from Fleet Ballistic Missile (FBM), transport layer, and other space exploration projects. The segment’s revenue is estimated to reach $3,174 million, representing a 2.3% improvement year-over-year.
Missiles and Fire Control: Ramped-up Production
The MFC segment, which provides critical missile defense support, is also expected to see a positive performance. The ramp-up in production of Guided Multiple Launch Rocket Systems and Long Range Anti-Ship Missile programs is likely to have fueled higher sales volume during the quarter. The Zacks Consensus Estimate for MFC’s third-quarter revenues is currently pegged at $3,116.7 million, indicating a 6% growth from the previous year.
Rotary and Mission Systems: Strong Sikorsky Performance
Lockheed Martin’s RMS segment is expected to benefit from increased sales volume of Sikorsky helicopters, particularly the CH-53K and Blackhawk models. The segment’s robust production ramp-up of laser systems and higher sales volume of radar systems are also expected to contribute positively to the third-quarter results. The Zacks Consensus Estimate for RMS revenue is currently pegged at $4,203.1 million, indicating a 2% improvement year-over-year.
Potential Earnings Headwinds
While Lockheed Martin’s top-line performance is anticipated to be strong, the bottom line might face some pressure due to a number of factors. Higher interest expenses remain a significant headwind for the company, as they have for many U.S. companies. While the Federal Reserve cut interest rates in September, the company’s interest expenses are still likely to have weighed on its third-quarter earnings.
Additionally, Lockheed Martin has been facing losses associated with a classified missile program at its MFC unit. These losses, which impacted operating profit in the first and second quarters, are expected to continue into the third quarter, potentially further impacting the company’s margins and earnings growth.
Finally, the unfavorable cost pressure faced by its Sikorsky business might have also negatively impacted LMT’s overall earnings performance, offsetting the positive impact of solid top-line growth.
Strong Performance and Valuation
Despite the potential challenges, Lockheed Martin’s stock has exhibited an upward trend over the year-to-date period, rising 33.5%, outperforming the Zacks aerospace-defense industry, which has declined by 7.3%. This strong performance reflects the company’s solid backlog of orders and its robust growth prospects in the global defense market.
Lockheed Martin’s dividend yield of 2.08% is also attractive, exceeding the S&P 500’s average yield of 1.22%. This highlights the company’s commitment to rewarding shareholders.
However, Lockheed Martin’s valuation appears to be stretched compared to its peers. The company is currently trading at 21.39X forward 12-month earnings, which is higher than the industry’s forward earnings multiple of 19.29. This elevated valuation may be a cause for concern for some investors.
Investing in Lockheed Martin
Given the recent upward revisions in earnings estimates, Lockheed Martin’s favorable Zacks Rank, and positive Earnings ESP, the company is unlikely to disappoint with its third-quarter results. However, considering its premium valuation and elevated leverage, investors may want to wait until after the earnings release on Tuesday to make a decision about buying the stock. The upcoming earnings call will provide valuable insights into the company’s future performance and growth prospects, which could influence investment decisions.