LMT Stock: This Could Send Lockheed Martin Corporation Soaring

LMT StockLockheed Martin Bests Analysts Again

Lockheed Martin Corporation (NYSE:LMT), maker of such fighter planes as the “F-35,” can boast about yet another unexpected jump in revenue for the first quarter of 2016. Lockheed Martin stock rose to more than $230.00 per share, setting a new all-time record-high.

What is remarkable is that Lockheed Martin stock has seen a relentless push since the start of the year. LMT shareholders are among those who know what “set it and forget it” really means. It would be difficult to find a steadier source of upside.

Not all the news was good, however, as quarterly net income fell 9.6% to $794 million, which translates into adjusted earnings per share (EPS) of $2.58, just a cent short of analysts’ prediction of $2.59.

But there was surprising revenue of $11.70 billion, which is a substantial 15.7% year-over-year increase and well above the $11.34 billion that Wall Street had expected. (Source: “Lockheed tops Street 1Q forecasts,” Yahoo! Finance, April 26, 2016.)

The icing on the stock came as Lockheed Martin, which now also makes “Sikorsky” helicopters, issued record guidance of between $49.6 billion and $51.1 billion for the year—higher than the $49.5 billion to $51.0 billion guided in January. As for EPS, Lockheed Martin expects $11.50 to $11.80, up from $11.45 to $11.75. (Source: Ibid.) Not even the most bullish of analysts had such forecasts.

The EPS improvement is not simply coming from potential new sales, either. Rather, Lockheed is aggressively pursuing cost reductions. These can be helpful both in securing bids and contracts with governments in tender competitions—especially in military aircraft—and in cutting operational expenses.

During the past quarter, Lockheed Martin has cut jobs in its aeronautics division and information systems. The Bethesda, Maryland-based company is about to merge its information activities with Leidos to focus on aeronautical and aerospace activities, as well as missiles.

One of the main reliability factors for LMT stock is that the company’s main client is the U.S. government.

Washington does cut military spending from time to time, as President Obama did in 2013 and with sequestration late last year. This is a predictable risk that rarely lasts, though. Such is the volatility in the world that defense spending can always experience a sudden and vigorous boost. Nobody was surprised when the White House approved $1.1 trillion in federal funds for defense for 2016. (Source: “Can Aerospace & Defense ETFs Protect Your Portfolio in 2016?,” NASDAQ, January 12, 2016.)

And each time the world becomes tenser, Lockheed Martin wins.

Recently, there is a lot of news about the Middle East and Russia, but little about the tensions in the East China Sea. The French government-backed DCNS recently outbid German and Japanese firms to win a $40.0-billion contract to build submarines for Australia. Part of the contract includes work for Lockheed Martin, as the U.S. Navy upgrades its submarine fleet. (Source: “France Just Won One of the World’s Most Lucrative Defense Contracts,” Fortune, April 26, 2016.)

Additionally, Lockheed has certainly gained from a boost in U.S. military spending resulting from Middle East conflicts. (Source: “Defense Stocks get a boost as Middle East tensions rise,” Investor’s Business Daily, January 12, 2016.)

But China is the other and perhaps bigger driver of military spending for decades to come. Since the start of 2016, China has made changes to its troops. Some of these include discipline, but the bigger change is the modernization of equipment. Chinese leaders have effervescent ambitions of hegemony over Asia. If Mao launched the Great Leap Forward in social terms, current President Xi Jinping is launching a great military leap forward. He wants a totally renewed armed forces by 2020.

Of course, Washington isn’t going to allow this to happen without some resistance. China has a stealth fighter jet and is rapidly acquiring all the technology it needs to compete with the West. This is going to drive for increased renewal of U.S. military air fleets, ships, electronics, and missiles at the Pentagon and NATO.

Lockheed Martin has few rivals at the Pentagon.