Lockheed Martin’s (NYSE: LMT) wings were clipped in the 1st half of 2023, but the Q2 results and guidance suggest the market could fly to a new high. The company beat on the top and bottom lines and raised guidance to a range that is sure to get the analysts buzzing. As it is, the analysts view the stock as a Hold and are supporting the price action.
The catalyst the market needs now is some upgrades and price target increases to reinvigorate the bulls. In that scenario, the share of LMT will retest the all-time high near $500 soon and break through to new highs before the end of the year.
Lockheed Martin Blows Past Consensus, Guides Higher
Lockheed Martin had a blowout quarter with revenue of $16.7 billion, growing 8.1% compared to last year. The revenue is 500 basis points better than expected and supported by the company’s diversified offerings. Aeronautics, the core segment, grew by 17% and was compounded by a 12% growth in Space. Missiles and Fire Control Systems grew by only 0.3%, and Rotary declined compared to last year.
The company experienced some margin pressure due to rising prices and mix but not enough to offset the top-line strength or impact the outlook negatively. Cash flow from operations and FCF are down compared to last year, but 1-offs, including the timing of tax payments, impact the numbers.
The salient point is that $6.73 in adjusted earnings is up compared to last year, beating the consensus by about 425 basis points. More importantly, the guidance for the year is excellent and should lead the analysts to up their revenue and earnings targets, if not their sentiment ratings or price targets.
Lockheed Martin increased the guidance for the top and bottom lines to a range above the high end of the previous range. The $27 low-end for earnings is also well above the consensus estimates and may increase again later this year. The company reported a record backlog of $158 billion and has only to execute on those orders to outperform its consensus estimates.
Lockheed Martin Leverages Capital Returns
Lockheed Martin generates significant cash flows and leverages them and its growth to drive shareholder returns. Shareholder returns topped 2X FCF for the quarter while maintaining a low 2X net-debt-to-equity ratio. The dividend is worth 2.55% to investors and is less than 50% of the adjusted EPS guidance. Share repurchases nearly double the returns and are expected to continue. The dividend has been increased for 20 years and shows no signs of stopping. The next increase is expected, with the next declaration due in September.
The institutional activity is mixed for the TTM period but bullish on balance. This activity is consistent with the stock’s trading range and bottom, helping to support the market. The institutions were bearish on balance in Q2, but that headwind appears to be subsiding. The risk for the market now is that institutions will sell into the rally and cap gains at the top of the current consolidation range.
The Technical Outlook: LMT Is Moving Higher
Shares of LMT gained more than 1.5% following the Q2 release and are moving higher. The market confirms support at the 150-day moving average and shows a bullish signal. MACD and stochastic indicators also show bullish crossovers consistent with a rising market. Assuming the market follows through on these signals, LMT shares should be able to reclaim all-time highs soon. Breaking out to a new high will come down to the analysts and institutions.
