Wall Street Reacts to Defense Sector Earnings

Lockheed Martin's bullish report boosted the defense sector on Tuesday

by Josh Selway

Published on Apr 24, 2019 at 10:31 AM
Updated on Jun 24, 2020 at 10:16 AM

On Tuesday, Lockheed Martin (LMT) stock shot higher on a well-received earnings release, closing the day up 5.7%. This helped lift sector peers General Dynamics Corporation (NYSE:GD) and Northrop Grumman Corporation (NYSE:NOC) above their 200-day moving averages for the first time in months. Now, while LMT enjoys some positive post-earnings analyst attention, GD and NOC stocks are reacting to earnings releases of their own.

Specifically, General Dynamics saw sales growth in all areas of its business during the quarter, including a 91% increase in revenue from its information technology unit. Total backlog across the company was up 11.4% year-over-year to $69.2 billion. Overall, total revenue of $9.3 billion for the period blew past estimates of $8.84 billion, a main reason GD is trading 1.3% higher this morning at $184.64, putting it on pace for its best close since November.

Data suggests that options traders were positioned for an after-earnings rally, judging by the Schaeffer's put/call open interest ratio (SOIR) of 0.49. Not only does this reading tell us that call open interest doubles put open interest among contracts expiring within three months, but it ranks as an annual low, meaning short-term speculators are more call-skewed than at any point in the last year.

On the other hand, NOC shares have fallen 3.8% to $281.59. While earnings per share of $5.06 easily topped analysts' expectations, revenue came up weaker than anticipated for the period. Post-earnings weakness is nothing new for Northrop, as the stock has closed lower the day after reporting in four straight quarters.

Still, analysts are overwhelmingly bullish, with nine of the 13 in coverage handing out "strong buy" recommendations. With the fundamentals clearly not living up to Wall Street's expectations in recent quarters, investors should be wary of downwardly revised analyst rankings for NOC stock going forward.


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