Why Lockheed Results Are Not Dragging Defense Stocks Down

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When earnings and revenues and guidance all come in at lower-than-expected levels, a company’s stock price usually takes some punishment. That’s what’s happening to Lockheed Martin Corp. (NYSE: LMT) Tuesday morning, but the effects are not rippling through other defense contractors as we might have expected to see.

Lockheed missed first-quarter earnings estimates by $0.18 per share (nearly 6.5%) and revenues by $170 million (about 1.5%). The company also chopped its full-year earnings per share (EPS) estimate by a dime (about 0.8%). Lockheed did raise its full-year operating cash flow guidance by $300 million to $6 billion.

Sales of the company’s F-35 joint strike fighter rose by about $305 million and sales of the F-16 rose by $60 million. But the F-35 program has come under increasing scrutiny by the Trump administration and under some pressure from Boeing Co. (NYSE: BA), which has been promoting an upgraded F-18 as a cheaper and roughly equivalent option to more F-35s.

In general, though, defense contractors are living large based on investors’ belief that the Trump administration will boost defense spending. The S&P 1500 index is trading at 16 times the consensus 2018 EPS estimates; the top five defense contractors are trading anywhere from 17 to 19 times the estimate. So, where Lockheed is taking a hit this morning, other defense contractors’ stocks appear to have overcome downbeat openings and turned positive.

Boeing, for instance, started off the day in the green following a report that the company is preparing to launch its much-discussed 737-10 program in about two months at the Paris Air Show. The shares traded up nearly 1% Tuesday morning, at $183.68 in a 52-week range of $122.35 to $185.71. The consensus price target on the stock is $181.90, and the company’s multiple to estimated 2018 earnings is 17.9.

General Dynamics Corp. (NYSE: GD) saw shares trading roughly flat at $191.92, in a 52-week range of $132.68 to $194. The stock’s 12-month price target is $203.06. General Dynamics reports earnings before the opening bell on Wednesday and is expected to post EPS of $2.32 ($2.08 last year) and revenues of $7.71 billion ($7.72 billion last year). The stock’s price multiple to expected 2018 EPS is 18.14.

Raytheon Co. (NYSE: RTN), maker of the Tomahawk missiles used in the attack on a Syrian airport earlier this month, reports first-quarter results Thursday morning and analysts are looking for EPS of $1.61 ($1.43 a year ago) and revenues of $5.83 billion ($5.76 last year). Shares traded up almost 0.3% Tuesday morning at $156.44 in a 52-week range of $124.98 to $157.59. The consensus price target is $169.17, and the multiple to expected to 2018 earnings is 18.88

Northrop Grumman Corp. (NYSE: NOC) traded up about 0.2% Tuesday morning, at $249.55 in a 52-week range of $200.55 to $253.80. The stock’s 12-month price target is $258.06. Northrop reports earnings on Thursday morning and is expected to post EPS of $2.92 ($3.03 last year) and revenues of $6.14 billion ($5.96 billion a year ago). The stock’s price-to-2018 consensus earnings estimate is 18.69.

Lockheed traded down about 2.3% after reporting earnings Tuesday morning. Shares traded at $269.98 in a 52-week range of $227.85 to $276.64. The consensus 12-month price target is $281.05, and the multiple to 2018 estimated EPS is 19.16.