Will Lockheed Martin Continue This Bull Run?

With shares of Lockheed Martin (NYSE:LMT) trading around $129, is LMT 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.

Lockheed Martin is cutting 600 jobs around the country from its Washington, D.C.-based Mission Systems and Training Division this month, the Washington Post reports. Lockheed Martin said the job cuts were not caused by the government shutdown but by increased competition and uncertainty over funding, according to a company spokesman. Lockheed Martin’s Mission Systems and Training unit focuses on making drones and other unmanned technologies.

T = Technicals on the Stock Chart Are Strong

Lockheed Martin stock has been trending higher in the last several months. The stock is currently trading slightly below all time high prices and looks poised to continue. 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 signal neutral to bullish price action in the near-term.

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

24.92%

63%

61%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December 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 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 Increasing 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

10.92%

14.78%

-16.97%

5.24%

Revenue Growth (Y-O-Y)

-4.30%

-1.97%

-0.92%

-2.06%

Earnings Reaction

1.96%

1.26%

-2.93%

2.14%

Lockheed Martin has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been optimistic about Lockheed Martin’s recent earnings announcements.

P = Average 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 sector?

Lockheed Martin

Boeing

Northrop Grumman

Raytheon

Sector

Year-to-Date Return

39.05%

61.76%

48.21%

34.26%

46.82%

Lockheed Martin has been an average relative performer, year-to-date.

Conclusion

Lockheed Martin provides valuable and essential security and aerospace technology to several companies and the governments worldwide. The company is reportedly cutting 600 jobs but it is not related to the government shutdown. The stock has been moving higher in recent years and is now trading slightly below all time high prices. Over the last four quarters, earnings have been increasing while revenues have been decreasing, however, investors have remained optimistic. Relative to its peers and sector, Lockheed Martin has been an average year-to-date performer. Look for Lockheed Martin to OUTPERFORM.

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