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Vitalii Liubimov's Avatar
published in Blogs
Jan 22, 2021

Three Major Defense Companies Set to Report Earnings and Rated as Buys

With earnings season starting to heat up, we will see certain industries grouped together with their earnings reports. The week of January 25 through 29 is a big one for defense companies. There are at least 10 companies set to report their latest earnings results, but I want to focus on three in particular.

Lockheed Martin (LMT) will report on Tuesday, January 26. General Dynamics (GD) is set to report fourth quarter results on Wednesday, January 27. Northrop Grumman (NOC) will release its fourth quarter results on Thursday, January 28.

All three companies have “buy” ratings on the Tickeron scorecards and all three are expected to see earnings growth compared to last year and compared to last quarter. The following table shows the EPS estimate for the fourth quarter and how it compares to the third quarter as well as how it compares to Q4 2019.

As you can see, Lockheed is expected to see a pretty big jump on a year over year basis while General Dynamics is expected to see a big jump on a quarter over quarter basis. Northrop’s growth expectations are much more modest.

If we look at the fundamental analysis for the three stocks, Lockheed gets three positive ratings and only one negative rating. Northrop shows two positive ratings and no negative ratings. General Dynamics doesn’t fare as well with only one positive rating and three negative ratings. The one category where all three companies score well is in the Valuation Ratings. Both General Dynamics and Lockheed score poorly in the P/E Growth Ratings.

All three companies score well on the technical screener. Lockheed has four bullish signals and no bearish signals. Northrop has four bullish signals and one bearish signal. General Dynamics has three bullish signals and no bearish signals. The one indicator that has flashed a bullish signal for all three stocks is the MACD.

One aspect of investing in defense industry stocks is dealing with the political influences. The defense industry is an area that seems to be misunderstood when it comes to performance and how politics impacts it. A common believe is that the industry does better under Republican administrations and doesn’t do as well under Democratic administrations. While it’s true that Republican administrations tend to favor larger defense budgets compared to Democrats, the stock performances of the industry don’t necessarily correlate.

All three of the stocks included in this analysis moved higher during the Bush presidency and they outperformed the overall market. The three did even better and outperformed the market by a greater margin during the Obama presidency. All three stocks underperformed the market over the last four years. The point being that you shouldn’t invest based on misconceptions. It’s much better to use back-tested and statistical based analysis.

The complete analysis from Tickeron for these three companies appears below.

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