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Lockheed Martin’s Fantastic Stock Run in 2016

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Lockheed Martin’s record in expectation management

Lockheed Martin (LMT) has managed to beat consensus EPS (earnings per share) estimates seven times in the last eight quarters. Given that Lockheed Martin managed to increase its sales even in 2015 in a tough economic environment, it goes without saying that its record of matching consensus sales estimates is good. The company has managed to beat consensus sales estimates in six out of the last eight quarters.

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Lockheed Martin’s year-to-date stock performance

Lockheed Martin’s YTD (year-to-date) return is more than three times that of the S&P 500 Index, as of July 11. LMT rose 19.3% from $213.21 at the beginning of January to $254.39 on July 11. Investors in the broader Market would have earned a 6.2% return from the S&P 500 Index in the same period. In 1H16, LMT rose 16.4%, and the S&P 500 Index rose 4.3%. While the overall Market has had a bull run in July, LMT’s gain has been largely related to its statements on the negotiation of F-35 contracts, as mentioned in the previous part of this series. As we see in the chart above, the stocks of some of its defense (PPA) peers, except for that of Raytheon, have had smaller gains in July.

YTD stock returns of peers

Among LMT’s defense (XAR) peers, General Dynamics (GD) has risen 3.8% YTD, as of July 11. The YTD returns of Northrop Grumman (NOC) and Raytheon (RTN) are 18.4% and 13.5%, respectively. In 1H16, the respective returns of GD, NOC, and RTN were 2.3%, 18.5%, and 10.9%.

In the next part of this series, we’ll discuss Lockheed Martin’s F-35 deal with the Pentagon.

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