Lockheed Martin (NYSE:LMT) is expected to show flatter sales growth going forward as the company may see hefty defense cuts as the U.S. struggles to control its deficit with close to $500 billion in planned cuts for the next decade. However, the company’s mounting backlog, which crossed the $80 billion mark by the end of 2011,  should provide a sufficient cushion in the short term. Lockheed Martin is the largest defense contractor in the U.S., competing with companies like Boeing (NYSE:BA) and Raytheon.
As Western Markets Dry Up, Lockheed Looks to the East
The Pentagon received FY 2012 budget request of $531 billion in 2011, which has reduced to $525 billion for FY 2013.  This budget request dispelled some fears among investors who were expecting a dramatic cut, turning out to be almost flat compared to FY 2012. However, the outlook beyond this horizon is cautious at best as the presidential elections could decide the fate of Lockheed’s most ambitious program, the F-35 Joint Strike Fighter. Even services that were so far showing a relative increase in Lockheed’s overall revenues could suffer as cyber-security measures focus more on maintenance than technological advancements. 
The logical step for the company is to now look eastward at the Asia-Pacific and Middle East. Escalating tensions in Iran have already provided Lockheed with foreign military sales (FMS) contracts to U.S. allies like U.A.E. and Saudi Arabia, and the electronic systems division is expected to increasingly get more overseas business compared to domestic sales.
We have a revised price estimate of $93 for Lockheed Martin, which is roughly 18% above the current market price. The revision is based upon our revised forecasts for the company’s revenues and EBITDA margins, as well as change in its net cash/debt position.