Here’s A Better Pick Over Lockheed Martin Stock

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We believe that Boeing stock (NYSE: BA) is currently a better pick than Lockheed Martin stock (NYSE: LMT), given its better prospects. Although Lockheed Martin is the more expensive of the two, trading at 1.7x trailing revenues compared to 1.3x for Boeing, this valuation gap is largely justified given Lockheed Martin’s superior revenue growth and profitability, as discussed below.

Looking at stock returns, LMT has significantly outperformed BA and the broader indices. While LMT is up 11% YTD, BA is down 35%, and the S&P500 index is down 23%. BA stock has been weighed down due to supply chain disruptions impacting its production rate. There is more to the comparison, and in the sections below, we discuss why we believe BA stock will offer better returns than LMT stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Lockheed Martin vs. BoeingWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Lockheed Martin’s Revenue Growth Has Been Better Over The Recent Years

  • Both Boeing and Lockheed Martin have seen a decline in revenue over the last twelve months. While Boeing’s sales are down 1.5%, Lockheed Martin’s sales declined 4.0% over this period.
  • However, looking at a longer time frame, Lockheed Martin has outperformed, with its sales rising at an average growth rate of 7.7% to $67 billion in 2021, compared to $53.8 billion in 2018, while Bowing saw its revenue decline at an average rate of -13.7% to $62.3 billion in 2021, compared to $101.1 billion in 2018.
  • Lockheed Martin’s 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.
  • Furthermore, the ongoing Ukraine-Russia conflict has increased focus on the defense sector stocks. New business awards will likely drive the company’s performance in the near term, with possible increased defense spending, especially by NATO members.
  • The revenue decline for Boeing can primarily be attributed to the impact of the 737 Max grounding in 2019 and the Covid-19 pandemic on the company’s businesses, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis. Commercial Airplanes was the largest segment for Boeing, accounting for 57% of total sales in 2018, but the contribution dropped to 31% in 2021.
  • Boeing, over the recent past, has struggled to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some of its suppliers further added to its woes.
  • Our Lockheed Martin Revenue and Boeing Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Boeing’s revenue is expected to grow faster than Lockheed Martin’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 6.2% for Lockheed Martin, compared to a 9.9% CAGR for Boeing, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Lockheed Martin Has Been More Profitable

  • Lockheed Martin’s current operating margin of 10.2% is much better than -2.7% for Boeing.
  • This compares with 14.4% and -1.6% figures seen in 2019, before the pandemic, respectively.
  • Even if we look at historical years (2017 to now), Lockheed Martin’s operating margin has been better.
  • Lockheed Martin’s free cash flow margin of 13.9% is much better than -4.4% for Boeing.
  • Our Lockheed Martin Operating Income and Boeing Operating Income dashboards have more details.
  • Looking at financial risk, Boeing’s 73.0% debt as a percentage of equity is much higher than 11.0% for Lockheed Martin, while its 8.5% cash as a percentage of assets is higher than 3.4% for the latter, implying that Lockheed Martin has a better debt position, but Boeing has more cash cushion.

3. The Net of It All

  • We see that Lockheed Martin has demonstrated better revenue growth and has been more profitable over the recent years,  primarily explaining the difference in the valuation of these two companies. On the other hand, Boeing has a better cash cushion and is trading at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Boeing is currently the better choice of the two.
  • The table below summarizes our revenue and return expectations for Lockheed Martin and Boeing over the next three years and points to an expected return of 51% for Boeing over this period vs. a 22% expected return for Lockheed Martin, implying that investors are better off buying BA over LMT, based on Trefis Machine Learning analysis –Lockheed Martin vs. Boeing – which also provides more details on how we arrive at these numbers.

While BA stock may outperform LMT, 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 by how counter-intuitive the stock valuation is for Marine Products vs. Amerco.

Despite higher inflation and the Fed raising interest rates, Lockheed Martin has risen 11% this year. But can it drop from here? See how low can Lockheed Martin stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
LMT Return -6% 11% 58%
BA Return -19% -35% -16%
S&P 500 Return -7% -23% 65%
Trefis Multi-Strategy Portfolio -10% -24% 200%

[1] Month-to-date and year-to-date as of 9/28/2022
[2] Cumulative total returns since the end of 2016

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