How to Play Lockheed Martin Following Q3 Earnings Beat?

Lockheed Martin Corp. LMT has come up with mixed third-quarter 2024 results, wherein its bottom line comfortably surpassed the Zacks Consensus Estimate but the top line missed the same. However, on a year-over-year basis, both sales and earnings showed positive growth, backed by robust demand for LMT’s products and services across all four of its business segments.The company ended the third quarter with cash and cash equivalents worth $3.15 billion compared with $1.44 billion at the end of 2023. The improved cash balance indicates a healthy financial position for the company. Looking ahead, LMT currently expects 2024 earnings per share (EPS) to be $26.65, higher than its prior guidance of $26.10-$26.60. This might lure investors to add LMT stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at how LMT has performed so far in terms of share price return, the stock’s long-term prospects as well as risks (if any) to investing in the same. This would help investors to make a more insightful decision.LMT Stock Outperforms Industry, Sector & S&P500Shares of Lockheed have surged 24.5% in the year-to-date period, outperforming the Zacks aerospace-defense industry’s decline of 7.8%. It has also outpaced the broader Zacks Aerospace sector’s growth of 0.1% as well as the S&P 500’s gain of 21.6% in the same time frame. A similar trend can be seen in the performance of other industry players like Embraer ERJ, Leidos Holdings LDOS and RTX Corp. RTX, which have witnessed a surge of 89.3%, 56% and 48.8%, respectively, year to date.LMT’s YTD PerformanceImage Source: Zacks Investment ResearchWhat Pushed LMT Stock Up?Lockheed’s broad portfolio of varied products — ranging from stealth fighter aircraft and littoral combat ships to missiles and space exploration capabilities — allows it to secure major defense contracts, thereby boosting its backlog count. Evidently, its backlog as of Sept. 30, 2024, was $165.69 billion, reflecting an increase from the previous quarter’s level of $158.34 billion. Such improving backlog count must have been instilling investors’ confidence in this stock, which was reflected in the form of its solid year-to-date share price hike. Among its other notable combat-proven defense programs, F-35 remains a key revenue-generating program for Lockheed and has always been at the center of attention for investors interested in defense stocks. Notably, this program generated approximately 22% of Lockheed’s total consolidated net sales in the third quarter. The company has delivered 1,040 F-35 airplanes since the program's inception, with 325 jets in the backlog as of Sept. 29, 2024. Moreover, LMT’s solid financial position enables it to make notable payouts to its shareholders. As of Sept. 29, 2024, Lockheed paid out dividends worth $2.28 billion to its shareholders. During the first nine months of 2024, it repurchased 5.7 million shares worth $2.7 billion. Investors tend to choose stocks like LMT that offer solid shareholder returns in the form of healthy dividend payouts and share repurchases. Potential RisksDespite being America’s largest defense contractor, Lockheed faces some notable challenges. Notably, the company has several contracts with the Türkish industry for the Türkish Utility Helicopter Program (“TUHP”). In 2020, the U.S. government imposed certain sanctions on Türkish entities and persons that affected Lockheed’s ability to perform under the TUHP contracts. The TUHP contracts may be negotiated for restructuring or termination, either in whole or part. As a result, Lockheed could be at risk of recording significant reach-forward losses in the future.Moreover, the company experienced performance issues on a classified fixed-price incentive fee contract in its Aeronautics business segment and periodically recognized reach-forward losses. As of Sept. 29, 2024, cumulative losses totaled approximately $145 million. Going forward, the company may have to record additional losses if there is any further performance issue, or increase in scope or cost growth, which might adversely impact its financial results.What Lies Ahead for LMT Stock?Despite the challenges mentioned above, one may remain optimistic about the company’s growth prospects. Notably, LMT's solid backlog count implies strong revenue generation prospects. Of its $165.69 billion worth of backlog, the company expects to recognize approximately 36% over the next 12 months and 59% over the next 24 months. The consensus estimate for LMT’s long-term (three-to-five years) earnings growth is pegged at a solid 4.7%.However, a quick sneak peek at its near-term earnings and sales estimates mirrors a different growth story.LMT’s Estimates Send Mixed ImpulseThe Zacks Consensus Estimate for 2024 and 2025 sales reflects an improvement of 5.2% and 4.2%, respectively, year over year. The Zacks Consensus Estimate for 2024 and 2025 earnings per share reflects a downward movement of 0.2% and 0.5%, respectively, over the past 60 days. This indicates analysts’ declining confidence in the stock. Yet, on a year-over-year basis, LMT’s 2024 earnings estimate reflects a deterioration, while that for 2025 reflects an improvement.Image Source: Zacks Investment ResearchImage Source: Zacks Investment ResearchLMT Stock Trading at a PremiumIn terms of valuation, LMT’s forward 12-month price-to-earnings (P/E) is 19.90X, a premium to its peer group’s average of 18.49X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers. The stock’s P/E also looks stretched when compared to its five-year median.Image Source: Zacks Investment ResearchShould You Buy LMT Stock Now?Investors interested in Lockheed should wait for a better entry point, considering its premium valuation and dismal near-term earnings estimate. Also, LMT currently has a VGM Score of C, which is not a very favorable indicator of strong performance. However, those who already own this Zacks Rank #3 (Hold) company may stay invested as its financial stability, upbeat sales estimates and solid backlog count offer solid revenue prospects.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lockheed Martin Corporation (LMT): Free Stock Analysis Report Embraer-Empresa Brasileira de Aeronautica (ERJ): Free Stock Analysis Report Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report RTX Corporation (RTX): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks