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Defense Stock Roundup: Earnings Beats, Positive Outlook & More at LMT, LLL, NOC

With the curtains down on the Q1 earnings season for the defense sector, we have the final earnings and revenue beat ratios and they look quite impressive at 77.8% and 88.9%, respectively. This shows that the sector has held up pretty well in the end.

The companies not only reported impressive numbers as a whole, but even lifted their outlook for 2016. The S&P 500 Aerospace & Defense (Industry) index also improved 1.85% last week.

Earnings releases apart, Lockheed Martin LMT and L-3 Communications LLL secured major big ticket programs from the Pentagon’s daily funding list.

(Read Defense Stock Roundup for Apr 26, 2016 here.)

Recap of the Week’s Most Important Stories

1.    Prime defense contractor Lockheed Martin reported better-than-expected first-quarter 2015 earnings even after incurring severance expenses. It boosted its 2016 outlook for EPS, revenues, operating profit and cash flow. The solid outlook, impressive revenue growth and potential share buybacks make LMT an attractive stock (read more: Lockheed Tops Q1 Earnings & Revenues, Boosts View).

Recently, Lockheed Martin has bagged a major contract from the U.S. Navy for the delivery of 13 F-35 Lightning II aircraft. The is a modification contract, valued at $1.27 billion, which includes the delivery of 13 F-35 Lightning II aircraft for the Marine Corps (six F-35B), Air Force (three F-35A) and Navy (four F-35C).

2.    Boeing’s BA first-quarter 2016 adjusted earnings missed the Zacks Consensus Estimate by 3.9%. Earnings also plunged 12% from the year-ago level, owing to a $156 million after-tax charge (24 cents per share) on the KC-46 Tanker program the company is developing for the U.S. Air Force.

However, the company's revenues beat the Zacks Consensus Estimate by 6.5% and increased 2% year over year.

As previously announced, on a year-over-year basis, the company’s commercial deliveries for the first quarter declined 4.3%, while defense and space deliveries increased by 19%. Boeing maintained its 2016 outlook with core earnings expected in the range of $8.15−$8.35 per share on revenues of $93−$95 billion (read more: Boeing Q1 Earnings Miss Estimates on Tanker Charge).

3.    Northrop Grumman's NOC first-quarter earnings and revenues beat Street expectations by 12.1% and 0.8%, respectively. The company’s earnings surged 29.4% on a year-over-year basis too on higher sales volumes. The company raised its 2016 guidance for diluted earnings per share to the range of $10.40 to $10.70 from the prior projection of $9.90–$10.20, while reaffirming its revenue outlook (read more: Northrop Grumman Q1 Earnings and Revenues Beat).

4.    Another defense contractor, L-3 Communications Holdings, Inc., registered strong Q1 results. L-3 Communications’ earnings and revenues beat Street expectations by 32.5% and 0.6%, respectively. Earnings increased during the quarter mainly driven by stronger-than-expected margins at Aerospace. The company even raised its Aerospace margin outlook for the year owing to improved contract performance at ISR.

The company also boosted its adjusted earnings per share guidance to a range of $7.55 to $7.75 from the prior projection of $7.40 to $7.60 (read more: L-3 Communications Tops Earnings, Ups '16 EPS View).

Apart from reporting forecast beating results, the company won a contract from the U.S. Air Force, worth $200.3 million, for warfighter readiness and training research. L-3 Communications will provide research, development, evaluation, and validation of training approaches, methods, tool, instrumentation, and enterprise infrastructure for learning and performance.

5.    General Dynamics Corporation’s GD first-quarter 2016 earnings from continuing operations comfortably surpassed the Zacks Consensus Estimate and the year-ago figure by 9.3%. The company – one of the two contractors that build nuclear-powered submarines — reportedly experienced “strong demand for defense products” during the quarter (read more: General Dynamics Tops Q1 Earnings and Revenues).

6.    United Technologies Corporation UTX reported first-quarter 2016 adjusted earnings of $1.47 per share compared with $1.44 per share in the year-ago quarter. Adjusted earnings for the reported quarter comfortably beat the Zacks Consensus Estimate of $1.39. Quarterly revenues of $13,357 million also beat the Zacks Consensus Estimate of $13,034 million. However, volatility in foreign currency adversely impacted the revenues of most of the company's segments during the reported quarter (read more: United Technologies Beats Q1 Earnings, Outlook Firm).

7.    The largest missile manufacturer, Raytheon Company RTN, also reported better-than-expected first-quarter results, with earnings and revenues beating expectations by 5.1% and 5.6%, respectively.

The company’s bookings in the first quarter were $6,201 million compared with $4,471 million in the year-ago period, reflecting an increase of 38.7%. Total backlog at the end of the quarter was $34.77 billion, up from $32.49 billion a year ago. It increased its earnings projection to the range of $6.93−$7.13 per share for 2016 from $6.80-$7.00 expected earlier (read more: Raytheon Beats Earnings Estimates, Boosts 2016 View).

Performance

Last week, the major defense stocks showed a mixed performance despite encouraging earnings reports. L-3 Communications gained the most followed by Northrop Grumman. However, Raytheon, Rockwell Collins and Textron ended in the red.

The past six-month picture is also mixed albeit with more gains than losses. Northrop Grumman gained the most while Boeing was the biggest loser.

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.
 

Company

Last Week

Last 6 months

LMT

0.47%

8.15%

BA

0.58%

-8.11%

GD

2.25%

-2.56%

RTN

-0.83%

8.66%

NOC

2.33%

12.56%

COL

-0.50%

2.16%

TXT

-1.86%

-7.12%

LLL

6.99%

9.16%


What’s Next in the Defense World?

Huntington Ingalls Industries, Inc. HII will release its first-quarter numbers on May 5.

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NORTHROP GRUMMN (NOC): Free Stock Analysis Report
 
BOEING CO (BA): Free Stock Analysis Report
 
GENL DYNAMICS (GD): Free Stock Analysis Report
 
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
 
UTD TECHS CORP (UTX): Free Stock Analysis Report
 
RAYTHEON CO (RTN): Free Stock Analysis Report
 
L-3 COMM HLDGS (LLL): Free Stock Analysis Report
 
HUNTINGTON INGL (HII): Free Stock Analysis Report
 
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