Summary
- LMT shares have increased 40% thus far in 2019 following strong quarterly results and heightened global demand amidst geopolitical tensions.
- A strong financial position bolstered by an advanced product offering have catapulted LMT to the forefront of defense companies looking to win over governments military contracts and awards.
- Mideast tensions and the Pentagon's interest in hypersonic technology present a lucrative business opportunity that LMT understands and is capable of delivering given its dominant position in the industry.
Overview
Lockheed Martin’s (NYSE: LMT) growth story in 2019 has been quite impressive thus far. Shares have rallied almost 40% in 2019 following strong first-quarter results. LMT has risen with other defense stocks amidst heightened global tensions while demand for LMT F-35 fighter jets and missiles continues to award the company with military contracts. Is it too late to buy LMT shares? Shareholders can expect LMT to continue outperforming the market due to three key factors. One, the company continues to improve profitability and cash flow, eventually leading to significant capital returns to shareholders in the form of dividends and share repurchases. Second, the company’s strong product portfolio headlined by the F-35 continues to be complemented by a rise in demand in LMT’s missile, helicopter, and satellite systems. Finally, international tensions backed by a domestic agenda supporting higher defense spending will continue to propel revenue and earnings thanks to heightened interest in hypersonic technology. Analysts indicate that LMT is set to increase profits by at least 14% annually over the next five years which translates to a forward PEG ratio at less than 1, therefore representing a great buying opportunity below $370 per share. Expect LMT shares to reach the $390 to $400 range by year-end 2019.
The Success of 2019
Source: Yahoo Finance.
LMT has greatly outperformed the 6.89% YTD return of the S&P 500 in 2019. So far in 2019, LMT shares have increased as earnings continue to outperform bolstered by heightened growth prospects. The biggest rise came in April following an outstanding first quarter:
- EPS of $5.99 versus estimated EPS of $4.34.
- Revenue of $14.3 billion versus estimated revenue of $12.52 billion.
- YoY revenue growth of +40%.
- Revised guidance of $20.35 EPS versus previous $19.58 EPS consensus.
- Revised guidance of $58.25 billion in revenue versus previous $56.81 billion in revenue consensus.
A key feature included the fact that every one of LMT’s business units surpassed revenue expectations. Of course as the bread and butter of the company, growing F-35 volumes propelled the company’s aeronautics division $659 million from the prior year. The defense contractor was able to win over a multitude of Department of Defense contracts and proved their position as the Pentagon’s military equipment contractor of choice.
What’s more interesting is the developments that occurred following the Q1 earnings report. Since then, LMT has locked in $10 billion worth of additional orders thanks to its strong product portfolio. Furthermore, a $945 million down payment for a Terminal High Altitude Area Defense missile system headed to Saudi Arabia was awarded to LMT in an effort to ease Mideast tensions. Since then, the company has been awarded a myriad of new defense contracts as demand from the Pentagon continues to increase.
