Key takeaways:
Current Price: $333 Price Target: $388
Position Size: 3.50% 1-year Performance: -12%
Lockheed’s 1Q19 earnings results were impressive with organic revenue growth of 23% (including an 8% boost from an extra work week). With bookings trend still positive (1.21X in the quarter), the revenue growth looks sustainable for the rest of the year (although not as high as 1Q). Margins expanded as well, and as new programs headwinds ease during the year, we should expect continued margin gains. This quarter, Lockheed delivered 26 F-35 jets (vs. 14 in 1Q18). During the call, management highlighted the increased international demand for the F-35, which will represent nearly half of the growth for this program in the future. LMT has facilities in place to ultimately produce over 180 aircrafts a year. The CFO noted some frustration with the US Air Force (discussions on driving down the price, as well as committing to 48 jets/year over the next 5 years vs. 60 jets initially projected). Overall 1Q19 earnings were much better than expected, explaining today’s positive stock reaction.
Segments review:
Missiles & Fire Control: sales +40% y/y driven by multiple programs
Rotary & Mission Systems: sales +17% y/y driven by all lines of business
Aeronautics: sales +27% y/y driven by the F-35 production
Space Systems: sales +13% y/y driven by government satellite programs
2019 Guidance raised on strong performance across the portfolio:
Sales guidance increased by $1B (+1.8%)
Mid-point segment margin 10.7%
EPS $20.05-20.35 (prior $19.15-19.45), increased from better operational performance & volume, tax rate and property sale gain
Cash from ops at least $7.5B (vs. $7.4B previously)
LMT Thesis:
· Lockheed Martin is a primary beneficiary from the replacement cycle for aging military aircraft and ships
· Excellent management team focused on returning capital to shareholders
· Strong cash flow and financial position
[tag LMT] $LMT.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109