Updates on Lockheed, Northrop and RTX as Aerospace and Defense Go to the Tape
Here's what I'm doing when it comes to three leading aerospace and defense names following earnings.
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Readers may recall that way back in February, I informed those who follow me that I was exiting Lockheed Martin LMT. The performance was getting sloppy. So was the guidance.
I also informed readers at that time that I was net exiting the space. I would be refocusing on my long position in Northrop Grumman NOC and re-initiating RTX RTX at that time. RTX is what we used to refer to as "Raytheon Technologies," which is now a segment of that larger company.
I see big-data driven, AI-focused intelligence, missiles (hypersonic and conventional), missile defense, and drones are where the development of military spending in a fiscally tough environment is headed. It pains me as an old grunt. There may be a place for expensive toys like tanks, fighter aircraft and the like, but these costly programs will not be the focus going forward. It also pained me to complete my exit from Lockheed Martin on February 24.
Since the close of business on February 24, using the last sales that I see posted after Tuesday morning's earnings hit the tape, LMT is now down 3.9%, while RTX and NOC are up 19.2% and 18.3%, respectively. So, at least on that maneuver, we appear to have made the correct decisions.
Earnings
For their respective second quarters...
Northrop Grumman posted a GAAP EPS of $8.15 on revenue of $10.351 billion. The top line result beat Wall Street and was good enough for year-over-year growth of 1.8%. The bottom-line print absolutely crushed expectations and compares very well to the year ago comp of $6.36.
RTX posted an adjusted EPS of $1.56 on revenue of $21.581 billion. The top line result crushed projections and was good enough for impressive year-over-year growth of 9%. The adjusted bottom-line print decisively beat expectations and compares well to the year-ago comp of $1.41. The firm's GAAP EPS of $1.22 also compares quite well to the year-ago result of just $0.08.
Lockheed Martin posted an adjusted EPS of $7.29 on revenue of $18.155 billion. The top line result fell short of expectations and amounted to year-over-year growth of just 0.2%. The adjusted bottom-line print also decisively beat expectations, but the GAAP EPS of $1.46 compares quite poorly to the year-ago comp of $6.85.
Guidance
Northrop Grumman is projecting full year 2025 revenue of $42.05 billion to $42.25 billion, narrowing and reducing the midpoint of the firm's prior guidance of $42 billion to $42.5 billion. The firm did increase full-year guidance for operating income, full-year adjusted EPS and full-year free cash flow (to $3.05 billion to $3.35 billion from $2.85 billion to $3.25 billion).
RTX is projecting adjusted sales of $84.75 billion to $85.5 billion, up from prior guidance for $83 billion to $84 billion. The firm reduced slightly their expectations for adjusted full year EPS and re-affirmed its expectations for free cash flow of $7 billion to $7.5 billion.
Lockheed Martin reaffirmed the firm's previously issued full year 2025 guidance for revenue, operating cash flow and free cash flow $6.6 billion to $6.8 billion. However, Lockheed sharply reduced the firm's projections for operating profit and GAAP EPS (from $27.00 to $27.30 to $21.70 to $22.00).
My Thoughts
Northrop Grumman:
Readers will see that NOC tallied out of a double bottom pattern of bullish reversal this past April and May into a rising wedge pattern of bearish reversal that the shares are trying to break out of on Tuesday. Should the shares fail to break out of this bearish setup, I will take some profits (not exit the stock completely) close to the top trendline of the wedge at some point later on Tuesday.
RTX:
Readers will see a very similar set-up to the above NOC chart for RTX. The one exception is that NOC is rallying, and RTX is selling off. I will add on weakness to this long position down to the 21-day EMA. A break below the lower trendline could develop as the wedge is a bearish set-up. I am just not sure that it's ready to close. Should I be wrong in thinking this an opportunity, there is nearby help present in the form of the 50-day SMA.
Lockheed Martin:
Readers will see that LMT came out of a double top pattern of bearish reversal that stretched from April into the present. Drawing trend lines that begin in early June on the top side and early April on the bottom, we see that a giant pennant has formed. This sets up a violent move, which appears to be happening this morning. Buy the dip? Be careful. Should the stock close below the low of April 7 ($418.88), this could get really ugly.
At the time of publication, Guilfoyle was long RTX and NOC equity.
