Is It Time To Buy Lockheed Martin Stock?

Defense stocks, particularly Lockheed Martin (NYSE:LMT), are currently in the spotlight following the recent attack by Israel on Iran’s nuclear program. As the largest missile provider to the U.S. government, Lockheed Martin’s role is critical. Notably, 20,000 missiles originally slated for Ukraine were recently diverted to Israel, according to the Ukrainian president. ^[1] Lockheed Martin has recently been under scrutiny following reports that the Pentagon has significantly reduced its request for Air Force F-35s by half. ^[2] This development highlights potential shifts in defense spending and procurement.

While Lockheed Martin presents an attractive valuation that may appeal to value investors in the defense sector, it also exhibits several operational and financial weaknesses that create inherent risks. Despite these concerns, the stock’s moderate pricing relative to its fundamentals and its demonstrated resilience during market downturns suggest potential upside for risk-tolerant investors. However, for investors who seek lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – Boeing Stock Faces Fresh Crisis After 787 Dreamliner Crash.

Image by John atlantis1@outlook.be from Pixabay

Attractive Valuation

Compared to the broader S&P 500, Lockheed Martin’s stock appears attractively priced across multiple valuation metrics. Its price-to-sales ratio of 1.6 is significantly lower than the S&P 500’s 3.0, indicating investors pay considerably less for each dollar of Lockheed Martin’s revenue. This discount extends to cash flow, with LMT’s price-to-free cash flow ratio of 16.6 favorably comparing to the S&P 500’s 20.5. Similarly, its price-to-earnings (P/E) ratio of 20.3 represents a meaningful discount to the S&P 500’s 26.4.

These favorable valuation metrics suggest that the market has likely already factored in many of the company’s operational challenges, potentially creating an opportunity for investors who believe the current pessimism is overdone or that improvements are on the horizon.

Stable Revenue Growth

Lockheed Martin’s revenue growth presents a mixed but stable picture. Over the past three years, the company achieved an average annual revenue growth rate of 3.0%. While modest, this consistency is notable given the challenging defense contracting environment, and lags the S&P 500’s 5.5% average, reflecting the mature nature of the defense industry and the cyclicality of government spending.

More recently, performance has shown signs of improvement. Revenue grew 3.1% over the last twelve months, increasing from $70 billion to $72 billion. The most recent quarter demonstrated accelerating momentum, with revenue increasing 4.5% year-over-year to $18 billion, nearly matching the S&P 500’s quarterly growth rate of 4.8%. This recent acceleration suggests that Lockheed Martin is maintaining its competitive position in key defense markets, even if overall growth remains modest.

Profitability Challenges

Profitability concerns represent the most substantial risk factor for potential investors. Lockheed Martin’s operating margin of 10.3% falls short of the S&P 500 average of 13.2%, indicating difficulties in converting revenue into operational profits. This weakness is evident across the income statement, with the company generating $7.4 billion in operating income from its $72 billion revenue base.

Cash flow metrics further highlight these profitability pressures. The company’s operating cash flow margin of 9.4% significantly underperforms the S&P 500’s 14.9% average, resulting in $6.7 billion in total operating cash flow over the past four quarters. At the bottom line, net income margins of 7.7% compare unfavorably to the S&P 500’s 11.6%, yielding net income of $5.5 billion.

These margin pressures likely stem from the competitive nature of defense contracting, potential cost overruns on complex programs, and the challenges of managing large-scale, multi-year projects with fixed-price components.

Financial Stability

Lockheed Martin’s balance sheet presents a mixed financial stability picture. Positively, the company maintains a moderate debt-to-equity ratio of 18.2%, slightly better than the S&P 500 average of 19.9%. With $20 billion in debt against a market capitalization of $110 billion, the company’s leverage appears manageable, providing financial flexibility for operations and investments.

However, the company’s liquidity position raises concerns. Cash and cash equivalents total only $1.8 billion out of $57 billion in total assets, resulting in a cash-to-assets ratio of just 3.2%. This figure is substantially lower than the S&P 500 average of 13.8%, suggesting limited financial cushion for unexpected challenges or opportunities requiring immediate capital deployment.

Market Resilience and Historical Performance

One of Lockheed Martin’s key strengths is its resilience during market downturns, adding a defensive quality to investment portfolios. During the 2022 inflation shock, LMT stock declined 20.8% from peak to trough, outperforming the S&P 500’s 25.4% decline. The stock demonstrated strong recovery capabilities, returning to pre-crisis levels by July 2024 and subsequently reaching new highs of $614.61 in October 2024.

While its defensive characteristics were less pronounced during the 2020 COVID-19 pandemic, with a 37.1% decline compared to the S&P 500’s 33.9%, it still recovered to pre-crisis levels by March 2022, showing medium-term resilience. During the 2008 Global Financial Crisis, LMT performed slightly better than the broader market with a 51.4% decline versus the S&P 500’s 56.8% fall, though recovery took longer, reaching pre-crisis levels by July 2013.

Investment Outlook

A comprehensive analysis of Lockheed Martin reveals a company with significant operational challenges balanced by attractive valuation metrics and defensive characteristics. While weak profitability and limited cash flow present genuine risks that investors must carefully consider, these concerns appear to be reflected in the stock’s current valuation, which trades at meaningful discounts across multiple metrics.

This analysis supports a contrarian investment approach. Investors considering LMT should view it as a value play with inherent volatility, suitable for portfolios that can tolerate near-term uncertainty. The potential for long-term appreciation exists as the company addresses its operational challenges and benefits from sustained defense spending trends. We estimate Lockheed Martin’s Valuation to be $520 per share, reflecting over 10% upside potential from the current levels.

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1. Zelenskyy: US diverting 20,000 missiles promised for Ukraine to the Middle East, Chris Boccia and Martha Raddatz, June 10, ABC News [↩]
2. Pentagon Slashes in Half Its Request for Air-Force F-35s, Roxana Tiron (BGOV) and Tony Capaccio, Bloomberg News, June 11, 2025 [↩]