Setting a Lockheed Martin Price Target After Classified Program Losses

As those readers who invest in and trade defense contractors well know, this is a big week for defense.

Two Sarge defense names reported on Tuesday morning, including Lockheed Martin LMT. For its fourth quarter, Lockheed fell short of estimates for both the top and the bottom line by a couple of miles. Meanwhile, RTX RTX, the old Raytheon, beat Wall Street on both levels.

Going into the opening Lockheed is down a bunch, but in percentage terms, RTX is up more. Laugh? Cry? Let's explore.

Lockheed, RTX Quarter Results

For the period ended December 31, RTX posted an adjusted EPS of $1.54 (GAAP EPS: $1.10) on revenue of $21.623 billion. The top-line print was good for year-over-year growth of 8.5%, while beating Wall Street by more than a cool $1 billion. The adjusted bottom-line number beat Wall Street by an impressive 16 cents. Adjustments were made for acquisition accounting costs and non-recurring restructuring costs.

Over the same time frame, Lockheed Martin posted a GAAP EPS of $2.22 on revenue of $18.6 billion. The top-line print reflected a year-over-year contraction of 1.3% and fell short of consensus view. The bottom-line print missed consensus by more than $4 due to pre-tax losses of $1.7 billion associated with classified programs which impacted the quarter EPS number by $5.45. One might argue that an adjusted EPS print would have beaten Wall Street.

RTX Segment Performance

Collins Aerospace: Revenue grew 6% to $7.537 billion, as operating profit contracted 2% to $1.106 billion. Adjusted, operating profit increased 17% to $1.207 billion.
Pratt & Whitney: Revenue grew 18% to $7.569 billion, as operating profit grew 32% to $504 million. Adjusted, operating profit increased 77% to $717 million.
Raytheon: Revenue grew 4% to $7.157 billion, as operating profit grew 36% to $824 million. Adjusted, operating profit increased 18% to $728 million.

Lockheed Segment Performance

Aeronautics: Revenue grew 5% to $8.009 billion, as operating profit contracted 43% to $443 million. This number was impacted by the $1.7 billion loss associated with the classified programs mentioned above.
Missiles & Fire Control: Revenue grew 8% to $3.412 billion, as operating profit/loss contracted 304% to $-804 million. This number was impacted by the $1.7 billion loss associated with the classified programs mentioned above.
Rotary & Mission Systems: Revenue decreased 10% to $4.261 billion, as operating profit contracted 11% to $513 million.
Space: Revenue decreased 13% to $2.94 billion, as operating profit grew 6% to $283 million.

Free Cash Flow

For the quarter reported, RTX generated operating cash flow of $1.561 billion. Out of that came capex spending of $1.069 billion, leaving free cash flow of $492 million. Full-year free cash flow was $4.534 billion.

At the same time, Lockheed generated operating cash flow of $1.023 billion. Out of that came capex spending of $582 million, leaving free cash flow of $441 million after a pension contribution of $990 million. Full-year free cash flow was $5.287 billion.

Lockheed, RTX Guidance

For the full year just started, RTX is projecting adjusted sales of $83 billion to $84 billion and adjusted EPS of $6.00 to $6.25. That would be up from $80.74 billion and $5.73. Wall Street had been looking for about $84.3 billion and about $6.25, so this is slightly disappointing.

For the full year just started, Lockheed is projecting sales of $73.75 billion to $74.75 billion and an EPS of $27.00 to $27.30. That would be up from $71.27 billion and $26.94. Wall Street had been looking for about $74.15 billion and about $27.60, so this is disappointing at least on the profitability side.

Chart One (RTX)

Readers will see that the positive reaction to these earnings has put the last sale for RTX right back in the middle of this upward trend that had been lost briefly in late December/early January. Relative strength is excellent. The daily MACD is set up quite bullishly, and the stock just enjoyed the benefits of a swing trader's golden cross, which is when the 21-day EMA crosses above the 50-day SMA.

It looks like RTX has also developed a cup pattern stretching from October into the present. I would not at all mind the addition of a handle to that cup. That makes the apex of the left side of the cup the pivot, which is $129. A handle would move to pivot to the right side of the cup.

RTX (RTX) Projections

Target Price: $148

Pivot: $129

Add: On the addition of a handle

Panic: Pn loss of the 200-day SMA (currently $114)

Chart Two (LMT)

This one is tricky, because the market does not like the guidance, the losses incurred associated with classified programs or the firm's pension obligations. Relative strength is waning. The daily MACD is ebbing and is no longer bullishly postured. Actually, there's not a lot to like, but I'll probably buy some today. Why?

See that purple mess I drew on the chart? That's a double-bottom reversal in progress. I think. No promises, which is why we have panic points, but I would not be surprised to see the stock make its weekly low today. Then, I may or may not get out after a technical bounce.

Lockheed Martin (LMT) Projections

Target Price: $534

Pivot: $509

Add: Now

Panic: Below this morning's low.

Right Now...

I'm thinking of RTX as an investment and Lockheed Martin as more of a trade.

At the time of publication, Guilfoyle was long RTX, LMT equity.