Should You Buy Lockheed Martin Stock Over Its Peer?

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Lockheed Martin

We believe that Boeing stock (NYSE: BA) is currently a better pick than Lockheed Martin stock (NYSE: LMT), given its better prospects. Both companies have a similar revenue base of about $66 billion, and both are trading at a similar valuation of around 2x trailing revenues. Although Lockheed Martin has seen better revenue growth over the recent years and is more profitable, better prospects and an attractive valuation for Boeing make it a better pick, in our view.

Looking at stock returns, LMT has significantly outperformed BA and the broader indices. While LMT is up 24% in the last twelve months, BA is up just 3%, and the S&P500 index is down 7%. 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, 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

  • Boeing has seen better revenue growth of 6.9% over the last twelve months, compared to a 1.6% fall in sales for Lockheed Martin.
  • However, looking at a longer time frame, Lockheed Martin has fared better, with its sales rising at an average growth rate of 3.4% to $66 billion in 2022, compared to $60 billion in 2019, while Bowing saw its revenue decline at an average rate of -3.3% to $67 billion in 2022, compared to $77 billion in 2019.
  • Lockheed Martin’s revenue growth over the recent years 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.
  • Earlier this week, Lockheed Martin announced over a $1 billion contract with the U.S. Navy for hypersonic missile systems.
  • 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 39% in 2022.
  • Boeing, over the recent past, has struggled to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some suppliers further added to its woes. However, of late, it has seen a rise in deliveries. It delivered 480 airplanes in 2022, vs. 340 in 2021 and 157 in 2020, reflecting significant growth in recent years. This trend is expected to continue going forward, likely increasing sales for Boeing.
  • Our Lockheed Martin Revenue Comparison and Boeing Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Boeing’s revenue is expected to grow slightly 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 5.8% for Lockheed Martin, compared to a 6.6% 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 Is More Profitable

  • Lockheed Martin’s current operating margin of 12.1% is much better than -1.5% for Boeing.
  • This compares with 14.4% and -1.6% figures seen in 2019, before the pandemic, respectively.
  • Even in historical years (2017 to now), Lockheed Martin’s operating margin has been higher.
  • Our Lockheed Martin Operating Income Comparison and Boeing Operating Income Comparison dashboards have more details.
  • Lockheed Martin’s free cash flow margin of 11.8% is better than 5.3% for Boeing.
  • Looking at financial risk, both companies are comparable. Boeing’s 46% debt as a percentage of equity is much higher than 12% for Lockheed Martin, but its 13% cash as a percentage of assets is also higher than 5% 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 over the recent years, is more profitable, and has a better debt position. On the other hand, Boeing has a more cash cushion and has seen better revenue growth over the recent quarters.
  • 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.
  • If we compare the current valuation to the historical average, Boeing fares better, with its stock currently trading at 1.8x trailing revenues vs. the last five-year average of 1.9x. In contrast, Lockheed Martin’s stock trades at 1.9x, trailing revenues vs. the last five-year average of 1.6x. Our Lockheed Martin (LMT) Valuation Ratios Comparison and Boeing (BA) Valuation Ratios Comparison has more details.
  • 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 27% for Boeing over this period vs. a 10% 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 24% in the last twelve months. 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 Feb 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
LMT Return 3% -2% 92%
BA Return -4% 8% 32%
S&P 500 Return -2% 4% 79%
Trefis Multi-Strategy Portfolio -4% 7% 237%

[1] Month-to-date and year-to-date as of 2/22/2023
[2] Cumulative total returns since the end of 2016

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