Here’s What To Anticipate From Lockheed Martin’s Q2?

Lockheed Martin (NYSE: LMT) will report its Q2 2024 results on Tuesday, July 23. We expect it to post revenue and earnings largely aligning with the street expectations. The company will likely benefit from a robust demand environment amid ongoing geopolitical tensions. Although we expect the company to post an in-line Q2, our forecast indicates that LMT stock has little room for growth, as discussed below. Our interactive dashboard analysis of Lockheed Martin Earnings Preview has additional details.

LMT stock has shown gains of 35% from levels of $355 in early January 2021 to around $475 now, vs. an increase of about 45% for the S&P 500 over this roughly three-year period. However, the increase in LMT stock has been far from consistent. Returns for the stock were 0% in 2021, 37% in 2022, and -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that LMT underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including CAT and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LMT face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, LMT stock looks like it has little room for growth. We estimate Lockheed Martin’s Valuation to be $500 per share, reflecting just 5% upside from its current levels of $475. Our forecast is based on a 19x P/E multiple for LMT and expected earnings of $26.20 on a per share and adjusted basis for the full year 2024. The 19x figure is slightly higher than the stock’s average P/E multiple of 17x over the last five years. A slight rise in valuation multiple for Lockheed Martin seems justified in the current environment of geopolitical tensions, bolstering the overall defense spending for some countries.

Looking at the previous quarter, Lockheed Martin’s revenue surged 14% y-o-y to $17.2 billion in Q1, with its Missiles and Fire Control segment seeing a solid 25% sales growth. Rotary & Mission Systems sales were up 16%, the Space segment saw 10% revenue growth, and Aeronautics sales were up 9%. However, its consolidated operating margin declined by 170 bps y-o-y to 11.8% in Q1. With lower operating margin, the company’s EPS declined to $6.39 from the $6.61 figure seen in the prior-year quarter.

Coming to the latest quarter, Lockheed Martin is expected to see growth across its segments. The Aeronautics segment will likely see growth from increased production of F-16 and F-35 jets. Earlier this year, Lockheed Martin won a multi-year contract worth $17 billion to develop the next-generation interceptors to protect the U.S. from intercontinental ballistic missiles, and this will drive its Missiles and Fire Control segment sales growth. The company expects the 2024 revenue to be between $68.5 and $70.0 billion and earnings to be between $25.65 and $26.35. This compares with its $67.6 billion sales and $27.55 EPS in 2023.