Hello guys!

As we speak I’ll be protecting the biggest protection contractor in america; Lockheed Martin (LMT). They’ve nice fundamentals and a stable, rising dividend.


Lockheed Martin is a well known federal protection contractor. Lockheed is chargeable for a few of the most storied and highly effective fighter jets on this planet such because the F-16, the C-130J Hercules, the F-35, and plenty of extra. They’re additionally a really influential missile producer with choices together with the PAC-Three system, the THAAD System, the Javelin Missile, and the Hellfire Missile.

Lockheed will get 74% of its income comes from the US authorities, 25% of its income from worldwide governments and 1% was from industrial and different prospects.

Their operations may be damaged up into Four distinct segments: Aeronautics (40% of income), Rotary and Mission Methods (25% of income), Missiles & Hearth Management (17% of income), and House (18% of income). Let’s take a more in-depth take a look at these segments.


This section contains superior army plane and unmanned drone manufacturing. That is in all probability Lockheed’s most storied section and is the place a majority of individuals know them from. The F-35 program made up over 69% of the aeronautics section’s internet gross sales in 2020 and is the crown jewel of Lockheed Martin’s aerospace choices. Manufacturing of the F-35 is predicted to proceed for a very long time given the US authorities’s stock goal of two,456 plane, commitments from 6 different worldwide governments, and curiosity from different international locations.

The drone a part of this section may be very promising. Drone spending is predicted to have a CAGR of 19.8% via 2023, and seeing as Lockheed is the biggest drone producer within the US, they stand to profit considerably.

In 2020, Lockheed Martin delivered 120 plane together with 46 to worldwide governments. This section acquired 69% of its income from US authorities prospects and 31% of its income from worldwide governments.

Missiles and Hearth Management

This section supplies air and missile protection methods, tactical missiles, and floor precision strike weapons. A few of their well-known choices embrace the Patriot Superior Functionality system and the Terminal Excessive Altitude Space Protection system. Additionally they have some extra cutting-edge (and costly) choices such because the Sniper Superior Focusing on Pod and the Infrared Search and Monitor hearth management system.

Rotary and Mission Methods

This section supplies industrial helicopters, floor ships, radar methods, cyber options, and simulation methods. This section acquired 72% of its income from the US authorities, 25% got here from worldwide governments, and three% got here from industrial prospects.


That is the section we all know the least about as lots of its operations are labeled. The principle prospects of this section are the US Air Drive, the US Navy, and the Nationwide Guard. The US authorities accounted for 87% of revenues and the remainder got here from worldwide prospects.

This section produces satellites, house transportation methods, and strategic, superior strike, and defensive methods. One of many largest applications on this section is the Trident II D5 Flett Ballistic Missle, the House-Primarily based Infrared System, and the Orion Multi-Objective Crew Car. I can see huge tailwinds making this a really worthwhile section.


Lockheed introduced in income of $65.398 Billion in 2020, a 9.34% achieve YoY, a 30.88% achieve from Three years in the past, and a 61.33% achieve from 5 years. I feel these numbers are completely staggering contemplating the efficiency of different Aerospace firms this 12 months (Raytheon’s income contracted 26.55% YoY and Basic Dynamic’s income declined 3.62% YoY).

Switching over to COGS, we’ve COGS of $56.744 Billion in 2020, an 8.82% achieve YoY, a 30.90% development from Three years in the past, and a 57.49% development from 5 years in the past. Whereas these will increase could appear massive, I might argue that within the Aerospace business, it is solely pure that COGS development will comply with income development. The one factor I might wish to see in terms of that is income development outpacing COGS development which it has in Lockheed’s case.

Lastly, looking at Web Earnings, we see a 2020 complete of $6.833 Billion, a 9.63% achieve YoY and a 112.04% achieve from 5 years in the past (I not noted 3-year development as a result of they’d simply spun-off an organization which means we get a development charge of 248.46%).


Lockheed Martin at present has a internet margin of 10.45%. Their internet margin has expanded by 17.54% within the final 5 years. Evaluating this margin to their friends, Raytheon is at present working at a -5.55% internet margin and Basic Dynamics is working at an 8.35% margin.

Money On Hand/Debt

Lockheed Martin at present has money available of three.16 Billion, representing a rise of over 108% YoY. The amount of money they’ve stockpiled makes me suppose they might be gearing up for an acquisition, or (more likely) persevering with to pay finished debt.

Talking of debt, Lockheed Martin has been paying down debt considerably for the final 5 years. They’ve shrunken debt by 18.42% within the final 5 years and 13.64% within the final Three years.

Free Money Stream

Lockheed Martin has had a rising FCF for some time now. Within the final Three years, they’ve grown FCF by 21.09%, and grown it by 55.53% from 5 years in the past.


That is the half you have in all probability been ready for (in spite of everything, that is the dividends subreddit).

Some of the shocking issues I discovered about Lockheed is its dividends. Lockheed at present pays a 2.99% annual dividend ($2.60 quarterly) that they’ve grown for 18 consecutive years. Within the final 5 years, they’ve grown the dividend by 59.34% and preserve a payout ratio of 40.75%.

For me, the truth that they pay such a hefty and sustainable quarterly dividend was simply an affirmation that Lockheed has been undervalued by the market.

Worth Ratios/Different

Lockheed has a TTM PE of 13.24x. This compares nicely with the present common industrials PE of 107.38x. Contemplating the expansion charges we have noticed within the final 3-5 years, I really feel like this can be a fairly low PE, though I acknowledge the short-comings and common unreliability of the PE ratio in terms of valuation.

What I discover actually attention-grabbing about Lockheed is simply how environment friendly they’re at producing capital. They’ve an ROE of 149.38%! This quantity is much more insane when you think about their friends’ ROEs. Raytheon has an ROE of -5.53%, Basic Dynamics has an ROE of 23.00% and Northrop Grumman has an ROE of 32.03%.


Utilizing Finbox’s 5YR DCF template, I acquired a Truthful Worth of $400.35 (18.7% upside). That is utilizing a 10% low cost charge (the very best WACC I might probably justify), a 3.9% income CAGR (additionally very conservative), and a 15.4% EBITDA margin (the common of the final 5 years).

As you’ll be able to see, even with very conservative inputs, Lockheed has vital upside.


For any enterprise, there are dangers, listed here are a few of the greatest ones for Lockheed:

  1. Stagnating army spend – Seeing as Lockheed is a army contractor, they’re depending on army budgets. The USA makes up a big majority of their income, so they’re delicate to the finances put forth by the DoD.

  2. F-35 troubles – The F-35 is Lockheed’s present bread-winner, so if the DoD decides to again out, Lockheed might be in some hassle. I peg this threat fairly low, although. The F-35 program has come a great distance and appears to be doing very nicely in check flights. It is a good video for those who’re .

  3. Aerojet acquisition problem – Raytheon lately challenged Lockheed’s acquisition of Aerojet citing provide considerations. Whereas there could also be a shred of advantage to this declare, I feel it is simply Raytheon making an attempt to get right into a competitor’s means and I feel the case will finally be both thrown out or settled for tens of thousands and thousands.


I am actually bullish on Lockheed. I feel they have been undervalued by the market simply because they are a member of a sector with some laggards. That being stated, I’d love to listen to some second opinions as I am not as skilled as lots of you’re.

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