Why Raytheon Surged, Boeing Slumped, and Lockheed Martin Rocked -- then Rolled -- This Week

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Why Raytheon Surged, Boeing Slumped, and Lockheed Martin Rocked -- then Rolled -- This Week

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A Tale of Three Defense Contractors Three of America’s biggest names in defense contracting reported earnings this week – with very different results for their share prices.

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What: Raytheon (NYSE: RTN) shares surged, gaining 3.5% after reporting earnings Thursday.

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So What: Raytheon sales of $5.8 billion increased only 3% in comparison to last year's Q2, but beat analyst estimates by 5% Earnings from continuing operations grew 4%, to $1.65, or $0.03 ahead of estimates Best of all, Raytheon generated free cash flow of $288 million during the quarter -- three times as much cash profit as Raytheon generated in Q2 2014

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Now What: Whether Raytheon’s acquisition of Websense will pay off in the long run (the purchase forced Raytheon to reduce earnings estimates for this year by $0.20) remains an open question. But Raytheon’s doing a bang-up job of growing the rest of its business, with new orders received exceeding old orders fulfilled (sales) by a factor of 1.3 in the quarter.

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What: Text Boeing (NYSE: BA) shares popped initially after earnings came out Wednesday, then slumped.

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So What: Boeing grew its Q2 2015 sales 11% year over year, to $24.5 billion. That beat analyst estimates by more than 1% Earnings outperformance was even better, with $1.59 per share surpassing the consensus by 16% And a surge of cash from plane deliveries has free cash flow now running at $6.8 billion annually – 28% ahead of reported earnings

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Now What: Trading for just 14.5 times free cash flow today, and projected to grow profits at nearly 12% as the company’s 787 Dreamliner program continues to scale up, Boeing shares are starting to look attractive after the week’s slump. Text

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What: Lockheed Martin (NYSE: LMT) popped on powerful earnings (and an acquisition… and a potential divestiture) Monday, slumped, popped again, slumped again, and ended the week not much higher than where they began.

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So What: Q2 sales grew 3%, to $11.6 billion, beating estimates by 5% Per-share profits of $2.94 per share likewise beat estimates, growing 6.5% year over year Cash from operations was up 29%, and even after accelerated capital investment, that left Lockheed Martin with $1.07 billion in free cash flow for the quarter, a 22% year-over-year improvemnet according to data from S&P Capital IQ Text

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Now What: Of course, the big news at Lockheed Martin was the company’s $9 billion acquisition of United Technologies’ (NYSE: UTX) Sikorsky helicopters business. The deal looks good, thanks to a $1.9 billion tax benefit that drops Lockheed’s effective purchase price to $7.1 billion. But only time will tell if Lockheed can parlay its profit-making proficiency in fighter jets into a turnaround in profitability at Sikorsky. Text

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