Lockheed Martin (NYSE: LMT) is a world-known American-based corporation that operates in the spheres of aerospace, defense, and security. The company is expected to deliver its Q2 2017 earnings report on 18 July before market open. This event can cause serious volatility spikes.
Here is the list of five factors that will likely move the stock price once the earnings research is released:
1) Sikorsky Takeover
Lockheed Martin purchased Sikorsky Aircraft back in 2015 for $9 billion. The acquisition added a lot to the company’s valuation. Both businesses can enjoy the synergy effect, that they got out of their partnership. Military technologies have a wide range of applications and chances are Sikorsky’s best practices will add to the innovativeness and competitiveness of Lockheed.
2) Plentiful Contracts
With American government spending billions of US dollars on defense each year, Lockheed is not expected to run out of contracts soon. Lockheed is not simply one of the US government military contractors, it is the largest one. The F-35 program, initiated by the Department of Defense, attracts money and talents to the aerospace division in particular. In 2016, the company delivered 200 units of F-35 aircrafts. This number is expected to grow by 40% by the end of the current year. The situation around North Korea can lead to additional contracts with Lokcheed.
3) Stable Cash Flow
As in any business, company’s ability to generate money is the number one feature all investors are looking for. During the first quarter of 2017, Lockheed generated $1.67 billion worth of cash from operations and bought back 1.9 million shares for $500 million. In the third quarter of 2016 the company also paid dividends of $500 million. Such actions increase shareholder value and therefore make LMT shares more valuable and expensive.
4) Dependence on Government
Getting all the contracts from the government is a good thing when your home country is involved in a lot of military action. Should the government stick to the less aggressive foreign policy, the business may encounter serious problems with demand for its products. And Lockheed, being the number one government contractor, faces a serious risk of decreased military spending. Though President Trump actively advocates increased defense spending, there is always a risk of decreasing government interest towards Lockheed technologies.
5) Decreasing EPS
Earnings per share (EPS) is one of the most important financial indicators. After all, most investors are in the business to get a decent return on their investments. Earnings per share indicate the amount of money a shareholder can get for each unit of stock at his disposal. The higher the number the better. Most companies have a tendency of increasing EPS over time, which does not take hold for Lockheed. Due to this factor alone the company can lose a portion of its value once the 2Q 2017 earnings report is released.
The overall outlook for Lockheed is moderately negative. Despite numerous innovations, favorable acquisitions and increased attention from the United States government, the company is believed to deliver lower EPS than in the same quarter last year. It can become the leading cause of LMT stock depreciation.
