Lockheed stock surges on profit growth, bullish forecast

Lockheed Martin soared the most in seven years on Tuesday after predicting robust sales growth next year including expanding international sales of the Fort Worth-made F-35 fighter jet.

The world’s largest defense contractor also surprised analysts with a forecast for stronger 2016 results following the $4.6 billion spinoff of an information technology unit in August. Profit is expected to be about $12.10 a share, compared with a July forecast ranging from $11.15 to $11.45 a share, the Bethesda, Maryland-based company said in a statement. Sales will expand about 7 percent next year, Lockheed said.

“Their outlook for 7 percent revenue growth next year is pretty impressive,” Douglas Rothacker, an aerospace and defense analyst at Bloomberg Intelligence, said by phone. “Granted, not many have given 2017 outlooks yet, but I think you’d be hard-pressed to find a defense contractor generating growth like that.”

Adjusted third-quarter earnings rose to $3.61 a share, handily exceeding the $2.89-a-share average of analysts’ estimates compiled by Bloomberg. Sales reached $11.6 billion, while analysts expected $11.5 billion.

The company said operating profits for the Fort Worth-based aeronautics division, its largest, increased by 5 percent to $437 million in the quarter as net sales increased 7 percent to $4.2 billion. The company said increased production of the F-35 expanded its sales by $300 million and added $25 million in operating profit.

The stock (ticker: LMT) rose $17.10, or more than 7 percent, to close at $249.26.

On a conference call, Lockheed’s chief executive officer Marillyn Hewson said the company is now aiming to generate more than 30 percent of its revenue from international sales in the next few years, led by the F-35 and missile defense programs.

Hewson bolstered Lockheed’s holdings over the past year by buying United Technologies’ Sikorsky helicopter division and increasing a stake in the U.K.’s nuclear deterrent program by 18 percent.

While the new Lockheed is coming into sharper focus, there are still several key unknown elements that may shape year-end totals, starting with continuing negotiations for the largest low-rate initial production F-35 contracts.

If talks wrap up this year as Pentagon officials have suggested, Lockheed’s cash from operations for the year would be greater than $5.7 billion, the company said. If collection slips into 2017, the total would be about $700 million less.

Quarterly projections were “muddied by a range of methodologies” that analysts used to model results amid several moving parts, said Jason Gursky, a senior analyst at Citigroup. The largest and most complex: the impact of the $4.6 billion spinoff of Lockheed’s IT division to Leidos Holdings through a tax-free transaction, he said in an Oct. 9 report.

This story was originally published October 25, 2016 at 3:48 PM with the headline "Lockheed stock surges on profit growth, bullish forecast."