If you read me often, then you know that Lockheed Martin (LMT) is a long-time Sarge favorite. I mean I am usually long several defense/aerospace stocks at any given time. That said, I can not remember the last time I was not long this one, and guarding against an unconscious favorable bias is something I work on.
On Tuesday morning, Lockheed Martin released the firm's first quarter financial results.
For the three month period ended March 26th, Lockheed posted an adjusted EPS of $6.43 (GAAP EPS: $6.61) on revenue of $15.126B. The adjustment, which was downward (a Wall Street rarity) was entirely due to mark to market accounting on investments made. This compares to adjusted EPS of $6.43 (GAAP EPS of $6.44) on revenue of $14.964B for the year ago comparison.
The $15.126B (+1%) in sales generated operating profit of $2.037B (+5%) as operating margin expanded from 12.9% to 13.1%. After taxes, net earnings dropped 2.5% to $1.689B.
Segment Performance
- Aeronautics generated sales of $6.269B (-2%), which produced operating profit of $675M (-0.6%) as operating margin expanded from 10.6% to 10.8%. The decrease in sales was primarily attributable to lower net sales of F-35 fighter aircraft, partially due to supply chain issues. This was partially offset by increased sustained production of F-16 fighter aircraft for export.
- Missiles and Fire Control generated sales of $2.388B (-2.6%), which produced operating profit of $377M (-2.1%) as operating margin expanded from 15.7% to 15.8%. The decrease in sales here was partially due to reduced sales of tactical and strike missile programs that were offset to a degree by increased sales of integrated air and missile defense programs.
- Rotary and Mission Systems generated sales of $3.51B (-1.2%), which produced operating profit of $350M (-13.8%) as operating margin contracted from 11.4% to 10%. Reduced production volumes for Black Hawk helicopters was to blame for the decrease in sales here. This offset against an increase in sales of integrated warfare systems and sensors.
- Space generated sales of $2.959B (+15.6%), which produced operating profit of $280M (+12.9%) as operating margin contracted from 9.7% to 9.5%. The increased sales for this unit were driven by elevated development volumes for strategic and missile defense programs based on a need to develop a next generation (hypersonic missile) interceptor as well as increased development volumes for national security space programs.
Guidance
The firm reaffirmed its full year guidance first offered up in January. That's not a negative. It's just that with the first quarter being better than expected, especially after CFO Jesus Malave had just told us in mid-March that sales were running a little light due to supply chain issues.
In particular, Malave was at that time probably referring to the F-35 program that has delivered just five aircraft this year due to a lack of engines that are supplied by the Pratt & Whitney division of Raytheon Technologies (RTX) . Bear in mind that Lockheed delivered 141 F-35's in 2022 and is targeting 156 of these deliveries per year. Five in a quarter is light.
For the full year, Lockheed sees net sales of $65B to $66B vs consensus view of $65.7B, diluted EPS of $26.60 to $26.90 versus consensus of $26.75, and free cash flow of roughly $6.2B.
Fundamentals
For the quarter, LMT generated operating cash flow of $1.564B. Out of this came $294M in capital expenditures to leave the firm with free cash flow of $1.27B (+11.2% y/y). From this, the firm paid out $784M in dividends and $500M in the repurchase of common stock, so the firm returned 100% of FCF to shareholders.
Turning to the balance sheet, LMT ended the period with a cash position of $2.44B and inventories of $3.471B. Current assets increased to $22.144B. Current liabilities add up to $16.982B, leaving the firm with a current ratio of 1.3 and a quick ratio of 1.1. Both of these ratios reflect a healthy current situation.
Total assets amount to $54.622B. This includes $13.173B in goodwill and other intangibles. At 24.1% of total assets, I do not see a problem. Total liabilities less equity comes to $44.976B including $15.485B in long-term debt.
The balance sheet is healthy. The only thing I don't like is the size of the debt-load versus the cash balance. Given that the firm is a cash flow beast, I would not have a problem with a reduced return to shareholders as a percentage of free cash flow and some of that cash put toward a reduction in outstanding debt. It's not a deal-breaker, but it is how I would advise.
My Thoughts
In late March, I wrote to you after the ARRW hypersonic missile test had failed to transmit in-flight data. I mentioned that at that time the stock needed to hold the 50 day SMA ($467 then). Did it ever. Before that, I have not focused on LMT publicly since February 8th. That's when I put my $541 target on the stock. Two weeks prior, I had suggested shorting a $440/$430 bear put spread that worked like a charm. In short, we've done well in his name.
The stock trades at 18.3 times forward looking earnings. Still not expensive. Still pays dividends totaling $12 per share per year (2.45% yield). Assuming that the firm does not take my advice, that's attractive. Being a cash flow beast does provide for flexibility.
LMT is trying to break out from a $499 pivot created by a six month basing period of consolidation. Relative strength is strong, but not quite overbought. The daily MACD (Moving Average Convergence Divergence) is in a solid position with the 12 day EMA (exponential moving average) running hotter than the 26 day EMA, and all three components sitting in the green.
Should the stock hold at least pivot, we are going to have to raise our target price.
Lockheed Martin
- Target Price: $573 (up from $541)
- Pivot: $499
- Add: Between the 21 day EMA ($485 and the 50 day SMA ($477)
- Panic: Only on a break of the 200 day SMA ($448)
Note: I think the $573 target makes me the high target on this name. TipRanks shows the Wall Street average target price for LMT at $500.80. If they're right, then you want to sell the stock here. I can not guarantee anything, but my track record on this name has worked out quite well for me, both of late and over time.
(Lockheed Martin is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells LMT? Learn more now.)
"flow" - Google News
April 18, 2023 at 10:00PM
https://ift.tt/g0stjGP
Lockheed Martin Is a Cash Flow Beast and Very Investable - RealMoney
"flow" - Google News
https://ift.tt/Qzcx0jb
https://ift.tt/4MxyuQ9
Bagikan Berita Ini
0 Response to "Lockheed Martin Is a Cash Flow Beast and Very Investable - RealMoney"
Post a Comment