Defense giant Lockheed Martin cruised past Wall Street second-quarter earnings expectations—with one caveat—and raised its full-year earnings guidance. Still, shares tumbled Monday.
For the quarter, Lockheed (ticker: LMT) reported $6.52 in per-share earnings from $17 billion in sales, in line with Wall Street’s expectations for $6.53 in per-share earnings from $17 billion in sales. But Lockheed recorded a $0.61 per-share charge related to “performance issues experienced on a classified program” at its jet-making franchise Aeronautics. These kinds of expenses, labeled as a special charge by Lockheed, typically don’t repeat.
Removing that 61-cent charge makes Lockheed’s quarter look solid. What’s more, the company raised its full-year guidance. Lockheed now expects to earn about $26.85 for full-year 2021, up from the guidance of $26.55 given in April.
Lockheed has raised full-year earnings guidance when reporting both its first- and second-quarter numbers.
“Lockheed’s execution over recent years has been so good that we can’t even remember when the last time was that we saw the company take an operating charge,” wrote Vertical Research Partners analyst Rob Stallard in a Monday report. “We would imagine that investors had been expecting the usual ‘beat and raise’ performance for 2Q, and so today’s inline result with no change to the operating guidance is likely to prove a disappointment.”
That looks like a good call. Lockheed stock was down more than 3% in early trading. The S&P 500 and Dow Jones Industrial Average were about flat. But Stallard recommends buying the dip: “Should the stock sell-off heavily, then this could be a good entry point.” He rates shares Buy and has a $443 price target for the stock.
“In my first year leading our company, I’m proud of the extraordinary resolve demonstrated by our 114,000 team members to rise above the challenges of the pandemic in support of our customers, our nation and our allies.” said James Taiclet, Lockheed Martin chairman, president and CEO. “Our teams continue to deliver on key platform programs while also advancing technologies critical for 21st century deterrence and scientific discovery.”
Taiclet seems pleased. Sales grew in each of the company’s segments: aeronautics, missiles, helicopters, and space systems. Total sales grew about 5% year over year.
Lockheed management scheduled a conference call for analysts and investors at 11 a.m. eastern. Investors will want to hear about the defense budget and its impact on Lockheed sales as well as the outlook for profit margins.
Year to date, Lockheed stock is up 7.3%, trailing behind the comparable 17.5% gain of the S&P 500. Lockheed stock, however, trades for 13.6 times estimated 2022 earnings. The S&P 500 trades for 20.5 times estimated 2022 earnings.
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