Why Lockheed Martin Has 'Work To Do' For Investors Next Year - Lockheed Martin (NYSE:LMT)

In a report issued Wednesday, Drexel Hamilton analyst Pete Skibitski assured that Lockheed Martin Corporation LMT has “work to do in 2016.”

However, the firm reiterated a Buy rating on the stock, raising its price target by $7 to $229.

Shares of Lockheed Martin have risen more than 2 percent on Thursday trading.

Lockheed Martin reported its third-quarter financial results on Tuesday. After the earnings call, Drexel Hamilton reiterated a Buy rating on the stock, while raising its price target to $229 and its 2015 EPS estimate (by $0.02) to $11.38 (above guidance of $11.30).

On the other hand, the firm trimmed its 2016 forecast by $0.29 to $12.51 on lower sales, margin and pension expectations, somewhat offset by a reduced share count.

A Look Into Results

In the third quarter, the global security and aerospace company delivered estimate-beating revenue on strength within the aeronautics and missiles segments.

Including a severance charge, which accounted for $0.08 per share of non-operating headwind, EPS of $2.77 was $0.09 (3.2 percent) above the firm’s projection.

On these robust results, management boosted its full-year revenue forecast from $43.5–$45 billion, to $45 billion, and EPS guidance from $11.00–$11.30, to $11.30. Cash flow guidance was maintained at greater than $5 billion.

A Look Forward

In the research note, Skibitski commented, “While 2015 looks strong, initial 2016 guidance was a bit disappointing: revenue guidance was flattish due to strong (about 10 percent) headwinds at IS&GS, though management noted the rest of the company is expected to be +2 percent. There does not appear to be meaningful headwind to guidance from a full-year C/R (due to LMT's large backlog), though this would likely prevent any meaningful upside beat.”

Moreover, he went on, the management team still expects the fourth quarter to be a banner quarter for orders (C-130J multi-year, F-35 LRIP 9), “though the firm noted caution around its greater than $5 billion cash from ops guidance for 2015 (approximately $750 million could slide right) as DOD has been reluctant to cash fund projects before final contract signing.” That said, Lockheed Martin remarked, “They had a handshake agreement on the C-130J contract w/in the past two weeks and F-35 should be signed before year-end.” To some extent, this situation reminded the analysts of the Brazil-Embraer KC-390 situation.

Finally, the report pointed out, it should be noticed that the Sikorsky and IT deals were not included in Drexel Hamilton’s forecast.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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