Should You Pick Lockheed Martin Stock At $430 After Q4 Beat?

+13.36%
Upside
432
Market
490
Trefis
LMT: Lockheed Martin logo
LMT
Lockheed Martin

Lockheed Martin (NYSE: LMT) recently reported its Q4 results, with revenues and earnings beating the street estimates. The company reported revenue of $18.9 billion, reflecting a 0.6% decline from the prior year period but above the $18.0 billion street estimate. Its adjusted earnings of $7.90 per share were up 1% y-o-y and above the consensus estimate of $7.26 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 20% from levels of $355 in early January 2021 to around $430 now, vs. an increase of about 30% 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 -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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, heavyweights in the industrial sector, including CAT, UNP, and GE, and even 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 like it has some room for growth. We estimate Lockheed Martin’s Valuation to be $490 per share, reflecting a 13% upside from its current levels of $432. Our forecast is based on an 18x P/E multiple for LMT at the upper end of the company’s provided 2024 earnings-per-share outlook of $25.65 to $26.35. The 18x P/E multiple compares with the last three-year average of 17x for LMT.

Lockheed Martin’s revenue of $18.9 billion in Q4 was down 0.6% y-o-y. The company reported a 3% rise in Space Systems revenue, while all other segments saw lower sales. The company’s consolidated operating margin remained stable at 12.1%. Despite marginally lower revenues and stable margins, Lockheed Martin’s bottom line grew to $7.90 on a per-share and adjusted basis in Q4’23 versus $7.79 in the prior-year quarter due to a 5% decline in total shares outstanding amid share repurchases.

Despite a Q4 beat, LMT stock has declined 6% since it reported its results due to downbeat guidance for 2024. The company expects revenue of $68.5 to $70.0 billion in 2024, slightly above the street estimates. However, its earnings forecast of $26.35 at the upper end of the range fell short of the $27.21 consensus estimates. Furthermore, the company is expected to face delays in first deliveries of its new generation F-35 jets amid software issues. Overall, we believe investors will likely be better off waiting for a dip to enter LMT for better gains in the long run.

While LMT stock looks like it has some room for growth, 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.

 Returns Jan 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 LMT Return -5% -11% 73%
 S&P 500 Return 2% 27% 118%
 Trefis Reinforced Value Portfolio 0% 38% 609%

[1] Returns as of 1/25/2024
[2] Cumulative total returns since the end of 2016

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