If you paid attention to the earnings headlines yesterday morning, you might’ve thought I had a couple screws loose. The financial media was blaring headlines like “Lockheed Martin Beats Estimates, Raises Outlook…” before the market opened on Tuesday, July 18…
And didn’t I just pan defense stocks on Monday…?
Why, yes. Yes, I did.
But ya know there are earnings BEATS…and then there are beats…
Lockheed Martin’s earnings beat was definitely of the lower case, tiny-font variety.
Earnings per share were up 6.5% to $6.73, when analysts were expecting $6.45. And revenue was up 8% to $16.69 billion for the quarter when analysts were looking for $15.92.
So Lockheed Martin beat earnings by 4% and revenue by nearly 5%.
Guidance was worse. Lockheed raised the range for full year 2023 earnings per share estimates from $26.60-$26.90 to $27-$27.20. Worst case: that thin dime that separates the top of the previous range and the bottom of the current range is really not worth mentioning. Best case: earnings will come in 2% better than analysts thought they would on Monday…
As you might expect, the revisions to revenue estimates weren’t much better. The previous range of $65 – $66 billion got an incremental boost to $66.25 – $66.75 billion.
I don’t really get how those weak numbers got investor all excited, but they gapped the stock up from Monday’s close at $470 to $474 at Tuesday’s open, ran it up to $479.50 in the first couple of minutes of trading.
Somewhere around that time I guess somebody actually read the press release and said “wa-a-a-i-it a minute” cuz the stock peeled off $23.80 from those early highs, to close just below its 50-day MA, which was sitting at $456.42.
Lockheed Martin shares are down another ~$5 today, testing support around $450.
The Politics of Defense
As I briefly discussed Monday, the problem for defense stocks, the reason Lockheed Martin’s guidance sucked and the stock got hammered has nothing to do with management’s effectiveness or whether Lockheed Martin’s products are in demand…
And in fact, we know very well that the artillery shells, missiles systems, tanks and planes made by Lockheed Martin, General Dynamics, Northrop Grumman and the rest are very, very much in demand.
Not only have America’s stockpiles of weapons been depleted by support for Ukraine, the rising tensions with China are another pretty compelling reason for the U.S. to be building inventory of things that go boom.
But for all of Congress’ “we support our troops” lip service, the fact is, they support their own agendas a whole lot more than the support troops and U.S. security.
The bill that actually finalizes the military budget (which includes more continued support for Ukraine) for the next year just passed the House. And I read it got loaded with 800 amendments. 800.
That’s completely ridiculous.
We’ve got a Senator who’s held up 270 military promotions because he doesn’t like the military’s policy on abortion. I bet China thinks it’s funny that America currently doesn’t have a Marine Commandant (the highest rank in the Marine Corps) for the first time since the Civil War.
Support our troops…mmmhmm.
The thing is, I don’t think the military is playing politics with its social policies. I’m not aware that the Marines are some kind of bastion of progressive policy. I think the military brass implements policies that make the military stronger.
Anyway. Enough of that rant, I’m getting a little worked up…
But I do wanna say that eventually, I expect Congress will stop politicizing America’s defense. Because the world is a much different place than it was before Russia invaded Ukraine and policy toward the military doesn’t reflect it. And it obviously needs to.
We should be on the lookout for either Congress or the administration to make restocking the military a priority.
I made the point Monday that defense stocks aren’t really expensive based on P/E ratios around 17 and 18. It’s just that it’s hard to see upside for the stocks without some revenue and earnings growth. Lockheed Martin is demonstrating that right now.
But if that growth can change – and it should, eventually – it’ll be a different story.
A New Host
Maybe you noticed that we finally got the Pro Trader Today website moved to its new host and the archives are finally active.
The technical aspect of running a website and email list is not my strong suit. But I can tell you there’s a lot of formatting and testing to do when you move a website like this one. My partner in this little venture, Dave Roberts busted his to butt to transfer the few hundred articles that make up the Pro Trader Today, so I can provide links to back up my boasting about all the awesome gains the stocks I’ve recommended have made…
Like, you see Lemonade (NASDAQ: LMND) up 15% to $24 today, with no news to help explain the ramp? Well, when you see a move like that, don’t ignore the likelihood that the stock is moving because it’s been recommended by some investment newsletter or even an investment bank tho likely a small one).
Of course, if that’s the case, and there was a recommendation for Lemonade stock yesterday when it was trading around $21, well, we’re looking pretty good with a recommendation at $15.
Ok, that’s it for me today, take care and I’ll talk to you Friday.