The shares of Lockheed Martin (NYSE: LMT) have almost recovered to pre-Covid levels supported by long-term defense contracts by the U.S. government and continued growth in military spending. The stock observed a headwind in January due to delays in full-rate production of the F-35 and the Senate’s override on the defense bill. Subsequently, the stock has rallied by 20% since early February driven by multiple contract awards by the Army, Navy, and Air Force. As Lockheed Martin’s shareholder returns are backed by strong fundamentals, a huge order backlog, stable margins, and consistent dividend payout, Trefis believes that the stock remains a good pick and highlights the quarterly trends in revenues, earnings, and valuation multiple in an interactive dashboard analysis, Lockheed Martin Earnings Preview.
Revenues and earnings to observe 4% and 6% growth in 2021, respectively
In 2020, Lockheed Martin’s four operating segments, Aeronautics, Missiles, Rotary Systems, and Space reported $26 billion, $11 billion, $16 billion, and $12 billion of the total revenues, respectively. The company is expected to observe a low single-digit broad-based growth across segments in 2021. Notably, the earnings per share is likely to expand at a high single-digit rate due to stock repurchases and lower shares outstanding. Given that the company has a huge order backlog of $147 billion and does not observe material seasonal trends, the annual revenue and earnings growth figures are expected to be similar across quarters.
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Favorable dividend yield still makes the stock a good pick
The company increased its quarterly dividend per share by 8.3% from $2.40 in Q3 2020 to $2.60 in Q4 2020. At a current market price of $390 per share, the annual dividend yield stands at 2.6% – higher than the 10-yr treasury yield of 1.69%. Moreover, the multi-year government contracts and sizable order backlog make the stock a safer bet during uncertain macroeconomic periods. Notably, the company’s net margin has remained fairly stable at 10% in the past few years – assisting consistent capital return to shareholders in the form of dividends and share repurchases.
The coronavirus pandemic has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Lockheed Martin vs. D.R. Horton shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.