Why Lockheed Martin Stock Is Dropping Today

Key Points

Lockheed Martin's recent earnings report was marred by one-time charges, leading to a significant profit shortfall. Despite being the world’s largest defense contractor, the company is facing challenges that have left investors concerned. While Lockheed Martin still maintains a strong business foundation, there are currently few immediate catalysts for growth.

Investors reacted negatively to the results, causing shares to drop more than 5% as of 10:30 ET on Tuesday. This decline highlights the growing skepticism surrounding the company's short-term prospects.

Charges Impacting Results

The company's latest quarterly performance included substantial cost overruns and write-offs, which significantly affected its financial results. These charges led to a missed earnings estimate. Lockheed Martin reported earnings of $1.46 per share on revenue of $18.2 billion, falling short of Wall Street's expectations of $6.52 per share on $18.6 billion in revenue.

A large portion of this discrepancy can be attributed to the inclusion of $1.6 billion in program losses, including $950 million related to a classified aerospace project. If these charges were excluded, earnings would have been approximately $7.29 per share, which is well above the reported figure.

In addition to the earnings miss, free cash flow was also weaker than expected. The company used $150 million in cash, compared to an estimated $1.2 billion in positive free cash flow. This shortfall was largely due to slower-than-anticipated F-35 deliveries.

Is Lockheed Martin Stock a Buy?

While many of the charges were one-time in nature, there is little indication that the company will see an immediate turnaround. Lockheed Martin's book-to-bill ratio, which measures future business relative to current-quarter revenue, stood at a weak 0.8x. None of the company’s four segments managed to secure more business than they billed out during the quarter.

Despite these challenges, Lockheed Martin remains a powerful franchise with long-term potential. However, for now, investors may have to rely on its 3% dividend yield while the company navigates through these headwinds.

Should You Invest in Lockheed Martin Now?

Before making any investment decisions, it's important to consider the broader market landscape. Some analysts believe that there are better opportunities available than Lockheed Martin. For example, the Motley Fool’s Stock Advisor team recently identified 10 stocks that they believe offer stronger growth potential.

These recommendations have historically delivered impressive returns. For instance, if an investor had followed the advice to buy Netflix on December 17, 2004, a $1,000 investment would have grown to over $665,092. Similarly, investing in Nvidia on April 15, 2005, would have resulted in a $1,050,477 return.

Stock Advisor has consistently outperformed the S&P 500, with an average return of 1,055% compared to 180% for the broader market. Investors interested in accessing the latest top 10 list can join Stock Advisor to learn more.

Final Thoughts

While Lockheed Martin remains a major player in the defense industry, its recent performance has raised concerns among investors. With ongoing challenges and limited near-term catalysts, the stock may not be the best option for those seeking immediate gains. However, its long-term potential and strong dividend make it a consideration for patient investors willing to weather the current downturn.