Defense contractors are once again in focus ahead of earnings season as a new war, this one between Israel and Hamas, appears set to upshift. Lockheed Martin (LMT) topped expectations for Q3 results early Tuesday. RTX (RTX), formerly known as Raytheon, General Dynamics (GD) and Northrop Grumman (NOC) are scheduled to announce results next week. LMT stock soared more than 10% last week, snapping a steep three-month decline as hostilities erupted in the Middle East.
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Lockheed Martin Earnings
Lockheed Martin earnings declined 1.5% to $6.77 per share adjusted on 2% revenue growth to $16.9 billion.
Analysts polled by FactSet expected Lockheed earnings to decline 2.9% to $6.67 per share on a 0.9% revenue uptick to $16.73 billion.
Lockheed’s aeronautics segment revenues fell 5.4% to $6.72 billion, compared to Wall Street predictions of $6.79 billion for the quarter. Missiles and fire control sales rose 3.8% to $2.94 billion, topping forecasts of $2.89 billion. Lockheed reported an 8.9% jump in rotary and mission systems revenue to $4.12 billion, which beat expectations of $3.97 billion. The defense contractor’s space segment saw sales increase 7.6% to $3.1 billion compared to estimates of $3.01 billion.
Lockheed’s total backlog rose to $156 billion as of September 2023 from $149.99 billion in December 2022. The company saw an increase in orders across every business segment except for aeronautics.
Lockheed generated $2.5 billion in free cash flow for the quarter. On Oct. 6, the company’s board authorized an additional $6 billion in stock repurchases, bringing the total authorization to $13 billion. Lockheed also announced a Q4 dividend payment of $3.15 per share, up 15 cents per share from the prior quarterly payment.
For the 2023 fiscal year, Lockheed Martin guided up to 25.6% earnings growth to range from $27 and $27.20 per share. The company expects 2023 sales between $66.25 billion and $66.75 billion, up to a 1.3% increase from last year.
FactSet sees full-year earnings of $27.16 per share on $66.68 billion in revenue.
Lockheed Martin averaged 4.5% earnings growth the past four quarters leading up to Tuesday’s results while revenue averaged 4.75% gains during the period.
LMT Stock
Lockheed Martin shares faded 2% premarket Tuesday.
LMT stock has popped back above its 10-week moving average, after diving below that line of technical support in July. Shares are not yet in any sport of actionable chart pattern, and are 13% below an April high.
LMT stock fell 9.9% so far in 2023.
Israel War Impact
Shares of defense contractors surged last week after the Hamas militant group, which the U.S. designates as a terrorist organization, launched a surprise attack on Israeli villages and communities on Oct. 7.
Israel responded by immediately declaring war, ordering a siege of the Gaza Strip and cutting off water, food and electricity to the roughly 2 million residents. Israel launched a multiday aerial bombardment campaign. It ordered the evacuation of northern Gaza as it reportedly prepared a ground assault.
Missile strikes are central to the conflict. Hamas claimed it fired at least 5,000 rockets at southern and central Israel during the air, sea and land invasion on Oct. 7. The group was able to breach the Iron Dome, Israel’s missile defense system that acts as the country’s first line of defense.
Defense In Focus
The Israel and Hamas war could drive up Department of Defense investments, BofA securities wrote in an Oct. 10 research note, according to reports from TheFly. The U.S. has, housed in Israel, a strategic stockpile of weapons described as “vast and unknown” by the New York Times. A “potentially longer conflict” could force the U.S. government to build additional munitions and weapons systems.
Ultimately, the U.S. will support Ukraine and Israel by supplying munitions, missiles and antimissile systems to the allies, BofA wrote. Companies primed for the potential boost include General Dynamics, Lockheed Martin, RTX and L3 Harris due to their exposure to missiles, propulsion systems, land defenses and munitions.
The U.S. ordered a second carrier strike group to the Mediterranean Sea and additional Air Force fighter jets to the region on Saturday. The Pentagon sent a carrier strike group and additional F-35 and F-16 jets to the region last week, CNN reported.
Lockheed and Northrop Grumman collaborate with BAE Systems and RTX to manufacture the F-35. General Dynamics and Lockheed also make the F-16 fighter jets.
As of early Monday, Israel reported its death toll rose to 1,400 people. Nearly 2,700 people have been killed in Gaza, CNBC reported. Hama reportedly took 199 persons hostage during the raids, according to a Monday report from the Guardian.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
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