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Defense Actions: Lockheed Martin, Raitheon Miked Despite Ukrainian Reinforcement; Northrop Grumman on deck

Defense stocks began reporting fourth-quarter results starting Tuesday. Raitheon (RTKS) was the first to report, with Lockheed Martin (LMT) will follow early Tuesday. Northrop Grumman (NOC) results are expected on Thursday. RTX shares rose and LMT shares jumped after the results.




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The US defense budget has grown to an all-time high. But Republican lawmakers are pushing for cuts to reduce the national debt that could potentially weigh on defense spending this year, Goldman Sachs analyst Noah Poponak wrote in a research note last week.

The earnings reports come after the Defense Department awarded a series of high-value contracts to defense companies in late December.

Lockheed Martin

Wall Street had forecast that the maker of the F-16, F-22 and F-35 fighter jets would report its third-quarter earnings decline for the past four periods, following a jump in Q3 earnings. Revenue was seen rising for the second quarter in a row after falling in two consecutive reports.

Expectations: Wall Street had expected Lockheed Martin’s earnings to decline 1% to $7.41 a share on revenue growth of 3% to $18.3 billion, according to FactSet.

The results: Earnings fell to $7.40 per share, while revenue rose 7.3% to $19 billion.

Lockheed Martin’s backlog rose 11% to $150 billion in the fourth quarter, led by a 15% jump in its aeronautics division to $56.63 billion. Its Aeronautics sales in the fourth quarter rose 7% to $7.6 billion, boosted by a higher volume of F-35 production contracts. And the company generated $1.2 billion in free cash flow for the period.

For fiscal 2023, Lockheed expects earnings to range from $26.60 to $26.90 per share on sales of $65 billion to $66 billion. Wall Street is forecasting earnings of $26.93 per share on revenue of $65.74 billion.

Meanwhile, the Biden administration plans to seek congressional approval for a $20 billion sale of new F-16 jets to Turkey, the Wall Street Journal reported on January 13. The sale would include 40 new aircraft and overhaul kits for 79 jets in Turkey’s existing fleet. The White House will also request a separate sale of next-generation F-35 fighters to Greece. In December, Lockheed was awarded just over $1 billion to accelerate production as it works to deliver 118 of the 18 F-35 Lightning II fighter jets by next January.

Shares of LMT are at a seven-week low ahead of the earnings report. Shares are trading 11% below a buy point of 499.05, according to MarketSmith. LMT shares jumped 5.5% on Tuesday after the results were announced. The stock is down 3% over the past three months, but is up 18.8% over the past year.

Raitheon

Mass.-based Raitheon. It is one of the largest producers of guided missiles, air defense systems, drones, satellites and war technology. In late December, the US announced it would supply Ukraine with Patriot air defense systems made by Raitheon to help in the war against Russia as part of a $1.85 billion military aid package. Ukraine has suffered a barrage of Russian missile strikes in recent months that have destroyed power grids and vital infrastructure. The Biden administration has been wary of providing such defense systems to prevent Moscow from being provoked. In total, America has provided Ukraine with $27.5 billion in various military aid since the Russian invasion last February.

Raitheon’s earnings growth slowed for seven quarters before Raitheon reported a 4% decline in Q3. But analysts expected its positive streak to continue in Q4. Revenue growth is forecast to accelerate for the second consecutive quarter after eight periods of growth.

Expectations: Raitheon’s earnings rose 15% to $1.24 per share, while revenue rose 6.7% to $18.2 billion.

The results: Raitheon’s earnings rose nearly 18% to $1.27 a share. Revenues rose about 6% to $18.09 billion.

Raitheon’s missile and defense equipment segment led the way in its quarterly results, led by equipment orders for Ukraine. During the fourth quarter, RMD had a book-to-bill ratio of 1.48 and sales rose 6% to $4.1 billion.

Management cited 2023 revenue of between $72 billion and $73 billion, versus the FactSet consensus of $72.32 billion. Adjusted earnings for the full year range from $4.90 to $5.05 per share, while analysts were expecting a 5% rise to $5.02 per share.

Shares of RTX last week fell out of the buy zone for its handle-base cup after the Nov. 30 breakout. The stock bounced back from its 200-day moving average on Friday, but has yet to regain its 10-day and 50-day lines.

Shares of RTKS rose 2% on Tuesday after the results. The stock is up nearly 8% over the past three months and nearly 10% over the past year.

Northrop Grumman

Virginia-based Northrop Grumman provides anti-artillery equipment, radar and surveillance aircraft and systems. It also produces F-35 fighter jets with Lockheed Martin, which are some of the company’s biggest revenue generators. Wall Street expects Northrop’s earnings to rebound after four straight declines. And revenue is seen rising for the second straight quarter after falling for four straight quarters.

Expectations: Northrop Grumman is expected to report a 9.7% increase in earnings to $6.58 per share on revenue growth of 11.8% to $9.66 billion.

NOC shares are trading near July lows after hitting all-time highs in late October following a long rally in November 2021. Shares rose 1.2% on Tuesday ahead of Thursday’s earnings report. Shares of Northrop Grumman have fallen more than 14% in the past three months, but are up 11% over the past year.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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