Lockheed Martin smashes earnings estimates in Q3 2024—So why is the stock tanking?

Lockheed Martin Corporation, the aerospace and defense giant, released its third-quarter earnings report for 2024, showing impressive profit growth yet sparking a surprising stock decline. The company reported an adjusted earnings per share (EPS) of $6.84, surpassing Wall Street’s expectations of $6.50. This result marked a strong profit performance and aligned with the company’s trend of consistent profitability. Despite this, Lockheed Martin‘s stock plummeted as investors reacted to a shortfall in revenue figures.

The Revenue Gap Overshadows Positive Profit Gains

Despite the company’s success in beating EPS forecasts, Lockheed Martin’s revenue of $17.104 billion, although reflecting a 1.3% increase year-over-year, did not meet analysts’ consensus expectation of $17.351 billion. This discrepancy became a focal point for investors, leading to a drop in the company’s stock value. In pre-market trading, shares of Lockheed Martin fell by nearly 3% as the market absorbed the mixed results.

Why Investors Remain Cautious

Market experts suggest that the stock’s decline stems from investor concerns about Lockheed Martin’s growth prospects. While the defense contractor has consistently posted profit growth, the revenue miss in Q3 raises questions about its ability to meet future sales targets, particularly in its Aeronautics division, which saw a 3% year-over-year decline in sales. Despite Lockheed Martin’s improved operating margins—such as the Aeronautics segment’s margin improving to 10.2%—the overall revenue figures signaled potential headwinds.

Lockheed Martin’s management, responding to these concerns, highlighted their strategic focus on enhancing profitability and maintaining operational efficiency. They pointed out that despite the revenue shortfall, the company’s backlog increased by 3.1% to a record $165.7 billion, suggesting long-term growth potential. Experts, however, have noted that while backlog growth is promising, it needs to translate into tangible revenue to regain investor confidence.

Expert Insights on Market Sentiment

Market analysts highlighted that while the EPS beat was an optimistic sign, the stock’s reaction reflects broader uncertainties. A financial expert explained that even though Lockheed Martin raised its EPS guidance for the fiscal year, the market remained cautious. He noted that traders in the options market displayed increased put activity ahead of the earnings release, indicating a lack of confidence among institutional investors.

Additionally, analysts emphasized that Lockheed Martin’s significant share repurchase program and increased dividend payouts, while attractive to long-term investors, might not be enough to offset the impact of revenue concerns in the short term. The company authorized an additional $3 billion in stock repurchases, increasing its total potential for future buybacks to $10.3 billion, reflecting its confidence in its long-term trajectory.

What’s Next for Lockheed Martin?

Looking ahead, Lockheed Martin’s raised guidance and solid EPS growth offer a positive long-term perspective. The company’s raised annual EPS outlook indicates its confidence in navigating near-term challenges. However, with market sentiment still cautious, the company’s next few quarters will be critical in demonstrating that its revenue can align more closely with its growing backlog. For investors, the recent volatility suggests an opportunity to closely monitor how Lockheed Martin adapts its strategies to ensure growth across all its segments, particularly in Aeronautics.