Will Lockheed Martin Dominate the Competition?

With shares of Lockheed Martin (NYSE:LMT) trading around $107, is the company an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Lockheed Martin is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. The company also provides a range of management, engineering, technical, scientific, logistic, and information services. It serves both domestic and international customers with products and services that have defense, civil, and commercial applications, with its principal customers being agencies of the U.S. government. It operates in five business segments: Aeronautics, Information Systems & Global Solutions, Missiles and Fire Control, Mission Systems and Training, and Space Systems. As a leading provider of global security and aerospace technology to the U.S. government, Lockheed Martin stands to see steady profits for many years. Defense products and services continue to be of great importance to the United States and a great source of revenue for Lockheed Martin.

T = Technicals on the Stock Chart are Strong

Lockheed Martin stock has experienced a bullish run extending back several years. Currently, the stock has broken-out to three-year highs and looks to be getting ready to test previous all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Lockheed Martin is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

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LMT

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Lockheed Martin options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Lockheed Martin Options

19.2%

70%

71%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Lockheed Martin’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Lockheed Martin look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

14.78%

-16.97%

5.24%

11.22%

Revenue Growth (Y-O-Y)

-1.97%

-0.92%

-2.06%

3.27%

Earnings Reaction

1.26%

-2.93%

2.14%

1.01%

Lockheed Martin has seen increasing earnings and decreasing revenue figures over most of the last four quarters. From these figures, the markets have generally been pleased with Lockheed Martin’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Lockheed Martin stock done relative to its peers, Boeing (NYSE:BA), Northrop Grumman (NYSE:NOC), Raytheon (NYSE:RTN), and the sector?

Lockheed Martin

Boeing

Northrop Grumman

Raytheon

Sector

Year-to-Date Return

16.76%

32.87%

21.53%

17.77%

18.26%

Lockheed Martin has been a poor relative performer, year-to-date.

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Conclusion

Lockheed Martin provides valuable and essential security and aerospace technology to several companies and the U.S. government. The stock has been on a bullish run over the last few years and looks to be continuing higher and testing previous all-time high prices. Over the last four quarters, earnings have increased, while revenues have decreased, which has generally pleased investors in the stock. Relative to its peers and sector, Lockheed Martin has been a poor year-to-date performer. WAIT AND SEE what Lockheed Martin does this coming quarter.

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