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Lockheed Tops Earnings, but the Stock Is Falling. Here's Why.Lockheed Tops Earnings, but the Stock Is Falling. Here's Why.Root, Al.Barron's (Online); New York Defense giant Lockheed Martin posted another strong quarter, beating analyst estimates and raising full-year earnings guidance. Still, shares were sliding Tuesday afternoon. Partly that's because Lockheed almost always beats earnings estimates. "Business as usual," Vertical Research Partners analyst Rob Stallard wrote in a Tuesday research note reacting to the earnings. "The real question is does this matter?" He said the bigger issue for investors is the outlook for defense spending "particularly with the U.S. election looming." For the third quarter of 2020, Lockheed (ticker: LMT) earned $6.25 a share from $16.5 billion in sales. Wall Street was looking for $6.09 in per-share earnings from $16.1 billion in sales. "In the third quarter, our dedicated workforce and resilient supply chain continued to support our customers' vital national security missions, overcoming the challenges of the pandemic," CEO James Taiclet said in the company's news release . "Looking ahead to 2021, we remain focused on driving innovation and growing our assets and capabilities to further benefit our customers and shareholders." Lockheed is still giving guidance—unusual for companies in a Covid-19 world—and guidance looks solid. The company raised full-year 2020 earnings expectations by roughly 55 cents, from $23.90 to $24.45. The boost is more than the 15-cent earnings beat. Analyst fourth-quarter estimates will need to go higher. And for 2021, Lockheed expects to generate at least $67 billion in sales, up from about $65.2 billion in 2020. The stock was down 1.5% Tuesday afternoon. That is sizable for Lockheed. Big moves aren't the norm in the large-capitalization defense sector. Defense stocks, for the most part, have had a far less dramatic year than many others. Lockheed shares have dropped about 2% year to date, worse than comparable returns of the S&P 500 and Dow Jones Industrial Average, but shares haven't been all that volatile since recovering off March pandemic-induced lows. In fact, it is possible to argue that the pandemic isn't the driver for the stock in 2020, politics is . In defense, politics always plays a role and investors appear to be waiting to see the outcome of the presidential election before jumping in. Valuation multiples tell that story. Lockheed's price to earnings ratio is less than 15 times and below where it was a few years back. The S&P 500, for comparison, trades for more than 20 times estimated 2021 earnings and its PE ratio is up from about 16 times a few years ago. Lockheed usually beats analyst earnings estimates. It has missed Wall Street estimates in only four of the past 44 quarters. And the worst miss was in the first quarter of 2017 when the company earned $2.61 a share when analysts modeled $2.79. It wasn't that bad. Shares dropped 2.2% in response that day. |
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