Lockheed Martin share price: what to expect in Q3 earnings

The Lockheed Martin [NYSE: LMT] share price has started rising again over the last month, ahead of the US aerospace and defence company’s Q3 earnings report this week.

News that China has been involved in hypersonic missile testing appears to have taken Washington by surprise, but could the situation offer a boost for Lockheed Martin’s guidance and earnings beyond this week’s third-quarter results, in turn giving the shares a further boost?

What’s happening with the Lockheed Martin share price?

Since dropping to a six-month low of $335.10 on 21 September, Lockheed Martin’s share price has jumped 11.79% to last week’s close at $374.60, as it heads back up towards its 52-week high of $396.99 set on 10 May. It’s been a rollercoaster ride across the last 12 months, however, and overall the shares have gained just 0.07% in that period. 

What could move Lockheed Martin’s share price post earnings?

Lockheed’s Martin’s share price could be further boosted by recent macroeconomic events. The FT reported on 17 October that China undertook nuclear-capable hypersonic missile testing in August. Beijing has denied the report, but it’s alleged that China has made “astounding progress on hypersonic weapons”, and that the "advanced space capability caught US intelligence by surprise," according to an unnamed source.

While the report has spurred US representatives to talk up its own defence capabilities, the news could well result in a US push to redouble its efforts to stay ahead of China, translating into increased defence spending and military funding, with the knock-on effect of fresh government contracts for Lockheed Martin.

The US is already among the nations actively developing hypersonic vehicles, while new tech will be needed for tracking these missiles, which are “widely viewed as the next frontier in military technology” reports Space.com.

Meanwhile, the Biden administration is currently carrying out a US nuclear policy review, which, coupled with the recent military developments from China, could reinforce a bullish outlook for defence manufacturers. In addition to fuelling the Lockheed Martin share price, other defence stocks that could benefit, according to Seeking Alpha, include Raytheon [RTX], Northrop Grumman [NOC], Boeing [BA], Kratos [KTOS], L3Harris [LHX] and Aerojet Rocketdyne [AJRD].

“We’re maintaining our prior guidance for full-year sales, segment operating profit, and cash from operations, while raising guidance for full-year EPS” - Lockheed Martin CEO James Taichet

What happened last quarter?

In Lockheed Martin’s Q2 results released on 26 July, the company reported net sales of $17bn versus $16.2bn in Q2 2020. Net earnings per share (EPS) of $6.52 per share surpassed the $5.79 recorded for the same period a year ago. The company also raised its April guidance for diluted annual EPS, from $26.40-$26.70 in April, to $26.70-$27.00.

Chairman, president and CEO, James Taiclet, said he was "proud” of its 114,000 workforce in rising “above the challenges of the pandemic”, which he said was “reflected in our solid sales growth across each business area this quarter." He added: “we’re maintaining our prior guidance for full-year sales, segment operating profit, and cash from operations, while raising guidance for full-year EPS."

What is Wall Street expecting?

Lockheed Martin is expected to report higher revenue but a year-on-year decline in EPS for the quarter ended September 2021. Zacks is estimating revenue of $17.15bn, which would be 4% higher than Q3 2020, while EPS is predicted to come in at $2.63 per share, which would be a decline of -57.9% versus $6.25 for the same period last year.

Ahead of Lockheed’s Q3 earnings, fellow aerospace and defence manufacturer Raytheon has recently had its share price targets upgraded by several analysts – could the outlook be similarly bullish for Lockheed, particularly if the company announces better-than-forecast Q3 earnings?

Currently, analysts have one ‘buy’ and six ‘hold’ ratings on the stock, for a consensus ‘hold’, according to MarketBeat, with an average analyst price target of $393.03, which represents a potential upside of 4.92% from Friday 22 October's close at $374.60. The Wall Street Journal paints a more bullish outlook on the Lockheed Martin share price, with an overall ‘overweight’ rating from nine ‘buy’, one ‘overweight’ and 10 ‘hold’ ratings. Its average price target of $421.44 represents a 12.50% jump from last week’s close.