Here’s What We Expect From Lockheed Martin’s Q2

Lockheed Martin (NYSE: LMT) will report its Q2 2023 results on Tuesday, July 18. We expect it to post downbeat results, with its revenue falling in line and earnings slightly below the street expectations. Supply chain constraints and elevated costs will likely pressure the company’s earnings. Although we expect the company to post a downbeat Q2, our forecast indicates that LMT stock has some room for growth, as discussed below. Our interactive dashboard analysis of Lockheed Martin Earnings Preview has additional details.

(1) F-35 Deliveries In Focus

• Trefis estimates Lockheed Martin’s Q2 2023 revenues to be $15.9 billion, reflecting a low single-digit y-o-y rise and aligning with the consensus estimate.
• The company’s F-35 deliveries will likely see tepid growth in the near term, as the Pentagon intends to accept the deliveries only with the Technology Refresh 3, aimed at certain hardware and software improvements for the jets. ^[1]
• Looking at Q1 2023, the company saw its sales rise 1% y-o-y to $15.1 billion. The growth was led by the Space segment, up 16% y-o-y, while its other segments – Rotary & Mission Systems, Missiles & Fire Control, and Aeronautics- saw a slight sales decline.
• Our dashboard on Lockheed Martin Revenues has more details on the company’s segments.

(2) EPS likely to be below the consensus estimates

• Lockheed Martin’s Q2 2023 adjusted earnings per share (EPS) is expected to be $6.38 per Trefis analysis, slightly below the consensus estimate of $6.45.
• The company’s net income of $1.6 billion in Q1 2023 reflected a 5% y-o-y decline, partly due to a 40 bps fall in segment operating margin to 11.1% .
• Elevated costs may continue to weigh on the operating margin expansion in the near term.
• For the full-year 2023, we expect the adjusted EPS to be higher at $26.89 compared to $21.66 in 2022.

(3) LMT stock looks like it has some room for growth

• We estimate Lockheed Martin’s Valuation to be around $507 per share, around 11% above the current market price of $459.
• This represents a 19x P/E multiple based on our forward EPS estimate of $26.67, compared to the last three-year average of 17x.
• We have assigned a slightly higher P/E multiple than the company’s historical average, considering new defense contracts signed, including a $7.8 billion Pentagon contract announced earlier this year. ^[2] With the ongoing Russia-Ukraine war, the demand for defense aircraft will likely remain high in the near term.
• If the company reports upbeat Q2 results and provides a 2023 outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in even higher levels for LMT stock.

1. Pentagon Could Block 80-Plus Deliveries of F-35s,  Audrey Decker, Defense One, June 28, 2023 [↩]
2. Pentagon awards $7.8 billion F-35 contract to Lockheed Martin, Reuters,  April 29, 2023 [↩]