Lockheed Martin Stock Will Likely Remain In Focus After A Stellar Q1

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LMT: Lockheed Martin logo
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Lockheed Martin

Lockheed Martin (NYSE: LMT) recently reported its Q1 results, with revenues and earnings above the street estimates. The company reported revenue of $17.2 billion, and earnings of $6.33 per share, compared to the consensus estimate of $16.1 billion and $5.80, respectively. The strong quarter for Lockheed Martin was driven by a robust demand environment amid ongoing geopolitical tensions. Although Lockheed Martin posted a solid Q1, its stock appears to have little room for growth, in our view. In this note, we discuss Lockheed Martin’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at its stock performance in recent years. LMT stock has shown gains of 30% from levels of $355 in early January 2021 to around $460 now, vs. an increase of about 35% for the S&P 500 over this roughly three-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; for heavyweights in the Industrials sector including CAT, GE, and UNP, and even for the megacap 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 little room for growth. We estimate Lockheed Martin’s Valuation to be $500 per share, reflecting less than 10% upside from its current levels of $460. Our forecast is based on a 19x P/E multiple for LMT and expected earnings of $26.20 on a per share and adjusted basis for the full year 2024. The 19x figure is slightly higher than the stock’s average P/E multiple of 17x over the last five years. A slight rise in valuation multiple for Lockheed Martin seems justified in the current environment of geopolitical tensions, bolstering the overall defense spending for some countries.

Lockheed Martin’s revenue surged 14% y-o-y to $17.2 billion in Q1, with its Missiles and Fire Control segment seeing a solid 25% sales growth. Rotary & Mission Systems sales were up 16%, the Space segment saw 10% revenue growth and Aeronautics sales were up 9%. However, its consolidated operating margin declined by 170 bps y-o-y to 11.8% in Q1. With lower operating margin, the company’s EPS declined to $6.39 from the $6.61 figure seen in the prior-year quarter. Looking forward, the company expects the 2024 revenue to be between $68.5 and $70.0 billion and earnings to be between $25.65 and $26.35.

Overall, Lockheed Martin posted a solid Q1, and it appears that the defense spending for some countries will see an uptick, boding well for defense stocks, including Lockheed Martin. Recently, the U.S. Senate passed a $95 billion package to aid Ukraine, Israel, and Taiwan. The bill also includes humanitarian aid for Gaza and the sale of TikTok in the U.S. [1] This development also bodes well for Lockheed Martin in the long run. Furthermore, recently, the company won a multi-year contract worth $17 billion to develop the next-generation interceptors to protect the U.S. from intercontinental ballistic missiles. [2] Although we think that some of these positives are already priced in for Lockheed Martin, with its stock trading at a slightly higher valuation multiple than its historical average, the continued geopolitical tensions will likely keep defense stocks in focus in the near term.

While from a valuation perspective, LMT stock looks like it has little 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 Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 LMT Return 1% 1% 84%
 S&P 500 Return -4% 6% 126%
 Trefis Reinforced Value Portfolio -6% 1% 615%

[1] Returns as of 4/24/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Senate Passes $95 Billion Package to Help Ukraine and Israel, Katy Stech Ferek and Lindsay Wise, April 24, 2024, The Wall Street Journal []
  2. Lockheed wins US missile defense contract worth $17 billion, Mike Stone, Reuters, April 16, 2024 []