After nearly a 25% rise year-to-date, at the current levels, we believe Lockheed Martin stock (NYSE: LMT) is fully valued. LMT stock rose from $354 in early January to $443 now. The YTD 25% move for LMT compares with -14% returns for the broader S&P500 index.
Looking at the longer term, LMT stock is up 69% from levels seen in late 2018. This marks an outperformance compared to some of its peers and the broader markets, with Boeing stock falling 56%, Raytheon stock up 45%, and the S&P 500 index rising 65% over the same period. Our dashboard – Why Lockheed Martin (LMT) Stock Moved – provides more details on the factors behind this move over the last three years.
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This rise over the last three years was driven by: 1. the company’s P/S ratio, which grew 21% from 0.7x in 2018 to 0.9x currently, 2. Lockheed Martin’s revenue rose 40% to $139 billion over the last twelve months, compared to $39 billion in 2018, and 3. a 6% decline in its shares outstanding to 268 million currently, compared to 284 million in 2018. This has meant that the company’s revenue per share rose 49% to $517 from $347.
The revenue growth over the recent past has been led by higher production volume for its Sikorsky helicopter programs, AC-3, Long Range Anti-Ship Missile (LRASM), and the Joint Air-to-Surface Standoff Missile (JASSM) program, among others.
The ongoing Ukraine-Russia conflict has led to an increased focus on the defense sector stocks, including LMT. New business awards are likely to drive the company’s performance in the near term, with possible increased defense spending, especially by NATO members. For example, Germany recently announced that it would dramatically bolster its defenses, allocating its armed forces a special one-time fund of about 100 billion euros (about $110 billion).
There are near-term headwinds, as well. There are fears of slowing economic growth given the rising inflation, Fed uncertainty, and supply chain disruptions. We estimate Lockheed Martin’s valuation to be $449 per share, which aligns with its current market price of $443, implying that investors may be better off waiting for a dip to enter LMT stock for better gains in the long run. Our valuation is based on a forward P/E ratio of 17x based on our earnings forecast of $26.68 on a per share and adjusted basis for full-year 2022. This compares with an average of 15x seen over the last three years.
While LMT stock looks fully valued, it is helpful to see how Lockheed Martin’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Cisco vs. Northrop Grumman.
|S&P 500 Return||-1%||-14%||84%|
|Trefis Multi-Strategy Portfolio||1%||-18%||224%|
 Month-to-date and year-to-date as of 6/6/2022
 Cumulative total returns since the end of 2016