Lockheed Martin (NYSE: LMT) reported its Q3 results last week, with revenues and earnings beating the street estimates. However, we believe that LMT stock has little room for growth. The company reported revenue of $16.9 billion, reflecting a 2% growth from the prior year period and above the $16.7 billion street estimate. Its adjusted earnings of $6.77 per share were down 1% y-o-y and above the consensus estimate of $6.68 per share. In this note, we discuss Lockheed Martin’s stock performance, key takeaways from its recent results, and valuation.
LMT stock has shown strong gains of 25% from levels of $355 in early January 2021 to around $445 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the increase in LMT stock has been far from consistent. Returns for the stock were 0% in 2021, 37% in 2022, and -8% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 10% in 2023 (YTD) – indicating that LMT underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the industrials sector, including UPS, UNP, and CAT, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LMT face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, LMT stock looks appropriately priced. We estimate Lockheed Martin’s Valuation to be $458 per share, reflecting only a 3% upside from its current levels of $446. Our forecast is based on a 17x P/E multiple for LMT and expected earnings of $27.12 on a per-share and adjusted basis for the full year 2023. The 17x P/E multiple aligns with the stock’s last three-year average. The company kept its earnings per share outlook range of $27.00 and $27.20 unchanged.
Lockheed Martin’s revenue of $16.9 billion in Q3 was up 2% y-o-y. The company reported a 9% rise in Rotary & Mission Systems sales, led by increased warfare systems and sensor sales. Space segment sales were up 8%, driven by the Next Generation Interceptor and Fleet Ballistic Missiles programs. The Aeronautics segment saw a 5% fall in sales due to lower volume for F-35 production contracts. The company saw its operating margin fall to 12.1% from 13.0% in the prior year quarter. Higher revenues and margin contraction led to a 1% y-o-y fall in the bottom line to $6.77 on a per-share and adjusted basis in Q3’23.
LMT stock looks fairly priced at $446, trading at 1.6x sales, compared to the last five-year average of 1.5x We believe investors will likely be better off waiting for a dip to enter LMT for better gains in the long run. Lower F-35 deliveries and margin contraction are some of the factors that can weigh on LMT stock in the near term. However, rising geopolitical concerns with the ongoing Russia-Ukraine and Israel-Hamas wars will likely result in increased defense spending, boding well for Lockheed Martin in the long run.
While LMT stock looks appropriately priced, 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.
|S&P 500 Return||-2%||10%||88%|
|Trefis Reinforced Value Portfolio||-3%||19%||514%|
 Month-to-date and year-to-date as of 10/24/2023
 Cumulative total returns since the end of 2016