Lockheed Martin Q4 2015 Earnings Could Make It Very Attractive

  • Lockheed Martin is due to report Q4 2015 earnings on 26th January 2016 before markets open.
  • Lockheed Martin has surpassed earnings estimates over the last four consecutive quarters and recently upped its fourth quarter and full-year guidance thus increasing its chances of topping estimates again.
  • Lockheed Martin appears to have limited downside in a very choppy market.

Lockheed Martin (NYSE:LMT), one of the world’s largest defense contractors, is due to report fourth quarter fiscal 2015 earnings on 26 January 2016, before markets open. Wall Street consensus is for Lockheed Martin to report Earning Per Share (EPS) of $3.00, as well as a revenue of $11.96B, compared to $3.01 reported by the company during the previous year’s comparable quarter.

During the third quarter earnings guidance, Lockheed Martin raised its full year revenue guidance from $43.5B to~$45B, which is slightly above the Wall Street consensus estimate of $44.8B. Lockheed Martin also raised its segment operating profit guidance from an earlier range of $5.23B-$5.38B to $5.4B. Lockheed Martin expects full year EPS to come in at $11.30, higher than the midpoint of its earlier guidance of $11.00-$11.30. The company did also forecast that its full-year free cash flow from operations will be greater than or equal to $5B.

Lockheed Martin has exceeded earnings estimates for the last four consecutive quarters.

Lockheed Martin Quarterly Earnings Surprise History

Quarter End
Per Share
EPS* Forecast
Sep2015 10/20/2015 2.77 2.7 2.59
Jun2015 07/20/2015 2.94 2.67 10.11
Mar2015 04/21/2015 2.74 2.48 10.48
Dec2014 01/27/2015 3.01 2.81 7.12

Source: NASDAQ

Playing Defensive with Defense Stocks

So far 2016 has shaped up as one of the most brutal periods for the equity market. The S&P 500 declined 8% during the first 10 days of trading, making it the worst 10-day start in the entire history of the market. The second-worst 10-day start is the 6.59% loss posted at the beginning of the year in 2009.

Ugly beginnings have, however, not always been good indicators of where the market would head for the rest of the year. In 2009, the market finished the year up a blistering 32%. It’s therefore still too early to say definitively that 2016 will become a bear market. There are some significant differences between 2009 and 2016 that should, however, keep investors on the alert. Over the preceding two years heading into 2009, the markets were down 35%, and they were down 20% over the preceding three year period. The current situation couldn’t be more different. Coming into 2016, the markets were up 15% during the previous two years and a blistering 45% over the previous three years. In other words, the current bad start has come after a raging bull market while the one in 2009 came after a bad bear market. There is therefore a fair chance that we could be staring at the beginning of an extended bear market.

It therefore helps to load up your portfolio on stocks that have relatively limited potential downside compared to the market average. Defense stocks seem to make the cut, since stocks in the sector have minimal global and currency exposure; interest rates are not likely to shoot too high too soon, and the uncertainty that has surrounded the government's defense budget for years finally seems to be lifting off. Lockheed Martin is numero uno on the defense sector list. The company is the U.S. defense bellwether; its iconic F-35 fighter aircraft is supported by the DoD as well as by export demand. LMT stock is down just 0.9% YTD compared to nearly 8%  the S&P 500 Index.

Lockheed Martin Stock YTD Returns

LMT stock chart

Lockheed Martin stock price chart by amigobulls.com

S&P 500 Index YTD Returns

SPAL stock chart

S&P 500  chart by amigobulls.com

LMT Stock A Good Bet Going Into Q4 Earnings

But that’s just one part of what makes Lockheed Martin a good defensive stock in the current choppy market. The other is that the company's healthy dividend yield of 3.1% provides a nice cushion against excessive capital loss. The company has been growing dividend payouts by 20% CAGR over the past 5 years and has sufficient cash reserves to grow dividends by at least 10% CAGR over the next five years.

Investors should therefore consider adding this defense stock to their portfolio to shield themselves against excessive capital erosion if the markets become even choppier.

Brian Wu Brian Wu   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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