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Lockheed Martin May See Higher Earnings From Middle East Sales

NEW YORK (TheStreet) -- Lockheed Martin (LMT - Get Report) , a global security and aerospace company, didn't increase its revenue in the past quarter. But the ongoing escalation in the Middle East could bring its revenue up in the coming quarters. Let's see why.

The company continues to rely heavily on the U.S. government. Last year, the government accounted for 82% of its total sales -- fully 61% were from the U.S. Department of Defense. Conversely, rival security and aerospace company Boeing  (BA)   relies less on the U.S. government. Its Defense, Space & Security business segment accounted for 35% of revenue in the second quarter.

In any case, if the U.S government doesn't start to expand its defense budget, this could further slash Lockheed Martin's revenue. The problem is that the Department of Defense's budget is expected to come down by 2.4% in fiscal year 2014 and 1.5% in fiscal year 2015. But the recent turn of events in the Middle East may bring some additional sales for Lockheed Martin after all.

The U.S. government has recently entered into several arms sales, including an $11 billion agreement with Qatar for Patriot missiles and Apache helicopters and a $700 million contract with Iraq for 5,000 Hellfire missiles just to name a few. Moreover, the ongoing fighting between Israel and Hamas could lead to additional shipments of Hellfire missiles to Israel. Those shipments were halted due to an impasse in relations between the White House and the Israeli government. These sales could translate to higher revenue for Lockheed Martin.

During 2014, shares of Lockheed Martin rallied by almost 19% so far. The stock is currently trading at $176.53 per share. Its forward price-to-earnings ratio is 14.60. In comparison, the forward P/E of the aerospace and defense sector is 25.67. Boeing's forward P/E is 15.08. This suggests that Lockheed Martin's stock is well-priced compared to its peers.

In the past quarter, the company has done well, with reported diluted earnings per share of $2.76, which was higher than analysts' consensus of $2.66. In the second-quarter earnings report, Lockheed Martin has also revised up its annual guidance for its diluted earnings per share from an average of $10.80 to $11 -- a 2% gain. This is a positive sign for the company's progress.

Lockheed Martin has recently had changes its management as well, as Brian Colan was appointed chief accounting officer and controller. He has replaced Christopher Gregoire, who was moved to become vice president of finance and business operations for Lockheed's mission systems and training business.

The company has been hitting its targets and improving its guidance. If the U.S. government continues to increase its volume of arms sold to the Middle East, this could further improve the company's bottom line.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates LOCKHEED MARTIN CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate LOCKHEED MARTIN CORP (LMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, good cash flow from operations, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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