Lockheed Martin (LMT  ) shares were 5% higher following the company's Q3 earnings report despite a miss on the bottom line and higher than expected costs. Initially, shares opened lower in the following session, but these losses were quickly recovered as investors focused on the potential for new contracts.

Inside the Numbers

In Q2, Lockheed posted $1.16 in earnings per share vs analysts' estimates of $1.71 per share. Revenue came in at $15.4 billion, a 9% decline which also fell short of analysts' expectations of $16.0 billion.

Another factor in the rebound in share prices was rumors that it was nearing a $30 billion contract with the Pentagon to deliver 375 F-35 fighter jets over the next 3 years.

The company also lowered its 2022 outlook due to weakness in F-35 fighter jet sales which the company attributed to pandemic-related production issues and a decline in federal funding. It also took losses on some of its investments in addition to several one-time charges.

Most of the weakness can be attributed to the Aeronautics division, which makes the F-35, and saw a 12% drop to $5.8 billion. However, during the conference call, the company said that due to events in Ukraine, interest had surged in new orders for F-16s.

Another matter contributing to the initial weakness was the company reducing its full-year guidance by 19% in EPS to $21.55 from $26.70. It also reduced its revenue outlook by 1.1% to $65.25 billion from $66 billion.

The Missiles and Fire Control unit, which makes High Mobility Artillery Rocket System (HIMARS), contributed $418 million, a 4% on the same quarter a year earlier. It noted increased interest in its missile defense units as well.

Management was cautious in noting that the increased interest for these systems and F-16s would take time into becoming revenue and earnings. However, it's clear that this is where the trend is going given that tensions in the world have seriously ramped up over the past year, and there is constant chatter about China's intentions with Taiwan.