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Defense Stocks: Lockheed Martin, Raytheon Mixed Despite Ukraine Push; Northrop Grumman on deck


Defense stocks began reporting fourth-quarter results on Tuesday. Raytheon (RTX) first reported, p Lockheed Martin (LMT) follow early on Tuesday. Northrop Grumman (NOC) results are expected on Thursday. RTX and LMT shares rose 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 lower the national debt, which could potentially affect defense spending this year, Goldman Sachs analyst Noah Poponak wrote in a research note last week.

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

Lockheed Martin

Wall Street predicted the maker of the F-16, F-22 and F-35 fighter jets would post its third quarterly profit decline in the past four periods, following a jump in Q3 revenue. Revenue rose for the second quarter in a row after falling in two consecutive reports.

Expectations: Wall Street had expected Lockheed Martin’s profit to fall 1 percent to $7.41 a share on a 3 percent rise in revenue to $18.3 billion, according to FactSet.

Results: Earnings fell to $7.40 a 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. Aeronautics’ fourth-quarter sales rose 7% to $7.6 billion, driven by higher F-35 production contract volume. 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 had forecast earnings of $26.93 per share on revenue of $65.74 billion.

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

LMT shares are at a seven-week low ahead of the earnings report. Shares are trading 11% below point of purchase of 499.05, acc MarketSmith. Shares of LMT rose 1.8% on Tuesday, bouncing off its 200-day line.

Raytheon

Massachusetts-based Raytheon is one of the largest manufacturers of guided missiles, air defense systems, drones, satellites and military technology. In late December, the US announced it would supply Ukraine with Patriot air defense systems made by Raytheon to help in the war against Russia as part of a $1.85 billion military aid package. In recent months, Ukraine has suffered a barrage of Russian missile strikes that have destroyed power grids and vital infrastructure. The Biden administration was anxious to provide such defense systems to prevent Moscow from being provoked. In general, America provided Ukraine $27.5 billion in miscellaneous military aid after Russia invaded last February.

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

Expectations: Raytheon’s earnings rose 15 percent to $1.24 a share, while revenue rose 6.7 percent to $18.2 billion.

Results: Raytheon’s earnings rose nearly 18% to $1.27 a share. Revenue rose about 6% to $18.09 billion.

Raytheon’s missile and defense segment led its quarterly results, led by equipment orders for Ukraine. In the fourth quarter, RMD had a book-to-book ratio of 1.48, and sales increased 6% to $4.1 billion.

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

Shares of RTX fell out of the buy zone for its own cup with handle base last week after the November 30 outbreak. Stocks rebounded from their 200 day moving average in Friday.

Shares of RTX rose 3.6% on Tuesday after the results, back above the 50-day line and a still valid buy point at 98.12.

Northrop Grumman

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

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

Shares of NOC are trading near July lows after hitting record highs in late October following their long run since November 2021. Shares rose 1.4% 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 market news and updates on Twitter @IBD_Harrison

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