This Could Send LMT Stock Soaring
U.S. defense group Lockheed Martin Corporation (NYSE:LMT) has posted slightly lower fourth-quarter earnings than in 2015, but the company beat expectations, even as LMT stock is trading slightly down in the $209.00 range.
Apart from the essential financial details, highlighted by net overall yearly earnings of $3.6 billion with one-percent higher revenue ($46.1 billion) and earnings per share of $11.46—analysts expected $11.38—Lockheed also announced the spinoff of its division dedicated to computer systems, which will merge with Leidos. (Source: “Lockheed Martin Earnings: Record Sales Drive Earnings This Quarter,” Forbes, January 27, 2016.)
During the fourth quarter, net income increased three percent to $933 million and earnings per share (EPS) was $3.01, well above expectations of $2.94 per share. Quarterly revenue of $12.92 billion beat expectations of $12.36 billion. (Source: Ibid.)
Yet while Lockheed posted decidedly good results, LMT stock has been trading as much as two percent lower, in the $209.00-per-share range, even if the price is still close to its all-time high of $226.00 per share.
This decline appears to have been prompted by the company’s lower 2016 guidance, which predicts revenue of $49.5 billion–$51.0 billion and earnings per share of $11.45–$11.75. The analysts have a problem less with the revenue and more with the EPS, which was expected to be forecast at $12.23 per share. The analysts were apparently suffering from myopia, because they ignored a remarkable achievement.
Lockheed Martin acquired The Sikorsky Aircraft Corporation, a maker of helicopters, from United Technologies Corporation last year. The new division’s results will be fully consolidated in the current financial year. (Source: “Lockheed Martin Reports Fourth Quarter and Full Year 2015 Results,” PR Newswire, January 26, 2016.) Moreover, LMT’s aerospace division saw 4.3% higher revenues year-over-year and an even better fourth-quarter increase of six percent.
As for the spinoff of Leidos, despite the loss of revenue in the short-term, analysts should appreciate the fact that Lockheed Martin stock will be ever more reliant on the group’s aeronautical, space, and missiles activities, according to CEO Marillyn Hewson. Lockheed Martin will use a cash payment of $1.8 billion to repay debts. (Source: “Lockheed to separate IT services business and combine it with Leidos,” The Washington Post, January 26, 2016.)
I’m calling it a game-changer for Lockheed.
Nevertheless, Credit Suisse still maintains a $225.00-per-share target price for LMT stock in 2016. At that price, Credit Suisse’s target indicates a potential upside of 7.18% from the present value. (Source: “Credit Suisse Lowers Lockheed Martin Co. (LMT) Price Target to $225.00,” Zolmax, January 27, 2016.)
Yet Credit Suisse is one of the more pessimistic institutions because the median price target is higher at $232.71. The high target is $252.00 and six out of 10 firms have actually upgraded LMT stock—four rating it a “Buy” and two rating it an “Outperform.” (Source: Yahoo! Finance, last accessed January 26, 2016.)
As the biggest defense contractor in a time when markets and geopolitics are facing ever-rougher waters, LMT stock stands out, at the very least, as stable and, at the very best, as some analysts have rated it, a strong “Outperform” contender.