Lockheed Martin: The View Looking Ahead

by Trefis Team
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Lockheed Martin (NYSE:LMT), with support from increasing government budgets, has seen revenues in recent quarters pick up. The latest quarter witnessed a 8.5% rise in net sales. With the recent pullback in the stock, Lockheed Martin looks more attractive than previously. But are the valuations more attractive? With a forward P/E ratio of 15 and earnings per share rising strongly this year, it is important to note Lockheed’s stock is considered a defensive stock, with one of the lowest correlations to the S&P 500. This makes it attractive to investors on many levels, especially large institutions.

We currently have a price estimate of $315 per share, which is 7%  higher than the market price. You can use our interactive dashboard Lockheed’s Outlook  to modify key drivers and visualize the impact on Lockheed Martins’ price estimate.

Lockheed Martin’s revenue has been recently supported with increased defense spending. With the Pentagon looking to spend an extra $60 billion, and military budget slated in 2019 to be $718 billion, Lockheed should expect to receive some portion of that increase in spending. This is further re-iterated by the fact that the military is increasingly looking to shift its strategy back to conventional warfare, as it looks to strengthen itself for potential conflicts in the Asia-Pacific and Eurasia regions. Lockheed recently won a contract of 22.7 billion from the Navy to provide 255 F-35 fighter jets. A contract which is expected to be completed by 2023, and should push Lockheed’s revenue up over the next couple of years. With increasing defense contracts, Lockheed expects that it will see revenue rise by 6% in 2019. Classified projects and Missile and Fire Control Systems have also seen substantial flow of revenue as military spending increases. This is expected to continue into 2019 as the military re-prioritizes its strategy.

With the increase in defense spending, and improved margins, this should translate into improved prospects for the stock going forward. With the shares of peers being more volatile, and their revenues being less certain, Lockheed’s stock may offer value that its industry peers may not.

 

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