Lockheed Martin Stock Analysis: Is it a good buy?

In a time when you have some excess cash. And want to find some stable companies to park your funds temporarily, while you hunt for value investments. Then perhaps you can consider our Lockheed Martin stock analysis today.

Well, the company is far from being the best investment opportunity. It is not undervalued at the moment per se. But it offers a strong combination of value and dividend yield, apart from it being a stable and reliable business.

The defense business is something that nations will have to spend. Unlikely it be disrupted to a great extent within a short period of time. It is an investment that you can probably sleep well at night.

Business Overview: Lockheed Martin Stock Analysis

Lockheed Martin is one of the largest defense contractors with more than $100 billion market cap currently.

As a global security and aerospace company, it offers a whole range of products and services including research, design, development, manufacture, integration and sustainment of technology systems.

Lockheed Martin serves both U.S and international customers. However, their principal customers come mainly from the agencies of the U.S government.

In 2020 itself, 74% of the $65.4 billion net sales recorded came from the U.S government. 25% were from international customers (including foreign military contracted through the U.S government). And 1% were from U.S commercial and other customers.

Lockheed Martin Stock Analysis, Net Sales by Segment

Source: Lockheed Martin Annual Report FY2020 / Net Sales by Segments

The company operates in four key business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. And they made up 40%, 17%, 24% and 18% of the total net sales respectively for FY2020.

We will not go into the details of each business segment. But basically they involve a wide range of specialized technologies and systems in the military context. It may be difficult for outsiders like us to truly comprehend.

Source: F-35 / F-35 Photos

Just to give you some ideas. Its key business include its F-35 program involving in the design, manufacture and deployment of the world’s most advanced fighter jet. In fact, it contributed 69% of Aeronautics segment’s net sales in 2020. In terms of percentage, it represents 28% of the company’s total consolidated net sales for the year.

Apart from offering military aircrafts and related products, the company’s products and services lie in a wide range of areas. They include defense, space, intelligence, homeland security, and information technology, including cybersecurity.

Political Risk and Limited Growth Potential

Lockheed Martin Stock Analysis, Revenue and Net Income

Source: Stockrow Lockheed Martin Corporation / Snapshots – Revenue and Net Income

Well, you can see from the chart that the company’s revenue and net income has been pretty stable. In fact, they have been increasing in a stable fashion over the past decade. That’s a positive point for investors.

However, investing in the defense industry can be a double edged sword. There’s political issues that can complicate the military-related business. Also, there may be limited growth potential for individual defense companies like Lockheed Martin.

Their expansion overseas to provide defense technologies and products to foreign nations are generally restricted by the relationship of the U.S with the respective countries. And most of the time, the U.S government has to approve these external contracts.

That’s expected. Because it involves sensitivities not only in the potential exposure of confidential U.S military capabilities, but also the risk of having these advanced technologies landing in the wrong hands.

Source: Mordor Intelligence / United States Defense Market Growth Forecast

As a result, the U.S defense market is forecasted to grow at a mere 2% compounded annual growth rate (CAGR) over the next decade.

Lockheed Martin Stock Analysis: Strong and Stable Business

Lockheed Martin Stock Analysis, Revenue and Net Income

Source: Stockrow Lockheed Martin Corporation / Snapshots – Revenue and Net Income

On the other hand, again, you can observe that Lockheed Martin’s revenue and net income have been pretty stable. In fact, they have been making systemic progress over the years.

This is because military spending is here to stay. Yes, the U.S federal government may adjust defense budgets from year to year. But it is not going to abandon the spending in defense altogether. The country needs to make sure that it has sufficient firepower to defend itself. Especially so given the superpower status of the role that the U.S is playing in the world.

Therefore, this steady stream of spending from the U.S government is something that Lockheed Martin had enjoyed in the past. And should continue to benefit in the years to come.

Sustained Business In Pandemic-Struck 2020

Lockheed Martin Stock Analysis, Financial Highlights FY2020

Source: Lockheed Martin Annual Report FY2020 / Financial Highlights

In fact, as you can observe from the table, Lockheed Martin’s net sales increased 9.3% from US$59.8 billion in 2019 to US$65.4 billion in 2020.

Similarly, its net earnings increased 9.7% from US$6.2 billion in 2019 to US$6.8 billion in 2020.

The pandemic-struck 2020 affected many businesses adversely, even putting many companies out of business completely.

Hence, the sustained and even slight improvement in Lockheed Martin’s earnings definitely showed the strength and stability of its business.

Growing Dividends

Lockheed Martin Stock Analysis, Dividends Per Share Chart

Source: Stockrow Lockheed Martin Corporation / Snapshots – Dividends Per Share

Lockheed Martin has a very strong and reliable business. Hence, the company has been able to raise its per share dividends consistently over the years, as observed from the chart.

Stable Debt Levels

Lockheed Martin Stock Analysis, Operating Cash Flow to Debt

Source: Stockrow Lockheed Martin Corporation / Snapshots – Operating Cash Flow to Debt

In terms of its debt levels, I would say that it has been pretty stable so far.

The step-change in debt from 2015 to 2016 was due to the US$9 billion acquisition of Sikorsky Aircraft. The deal was mostly financed with debt, to expand its business in the helicopter sector.

Consequently, its business has improved with rising revenue and operating cash flow as observed from the chart.

Lockheed Martin Stock Analysis, Free Cash Flow Data

Source: Macrotrends / Lockheed Martin Free Cash Flow Data

Moreover, Lockheed Martin recorded a free cash flow of about US$6.4 billion in 2020. The debt level is around US$12 billion as of the end of 2020. Assume that the company don’t distribute the cash in terms of dividends or share repurchase. It can potentially pay them off in about 2 years time,

Hence, I would say that the company’s balance sheet is pretty healthy. There should be no problem for it to navigate through difficult times.

Lockheed Martin Stock Analysis: Valuation

Lockheed Martin Stock Analysis, Stock Summary

Source: Yahoo Finance / Lockheed Martin Stock Summary

Lockheed Martin’s share price has been fluctuating between the US$330 – US$400 range over the past year.

At the current share price of around US$390, it is giving a forward dividend yield of around 2.66%. Its Price-to-Earnings (P/E) ratio will be around 15.75.

Source: Macrotrends / Lockheed Martin PE Ratio Chart

The 2017 earnings were impacted by one-time non-cash charges related to impacts of the Tax Act. If we disregard this, the company’s average P/E ratio generally ranged between 13 -18.

Source: YCharts / Lockheed Martin Dividend Yield Chart

Similarly, observe that it’s dividend yield has been ranging in the 2 – 3% level over the past few years.

Therefore, at the current share price of US$390, I would say that it’s reasonably valued. It has a P/E of around 16 and dividend yield of about 2.7%.


To wrap this Lockheed Martin stock analysis, I would say that the company is pretty reasonably valued. It’s suitable for long term investors looking for stable and predictable returns.

Apart from the stable dividend yield of 2.7%, the company’s business should grow at least in tandem with the increased spending in defense at about 2% annually, as discussed earlier.

With the company’s long operating history and established trust, its contract and business with the U.S government should continue in the years to come. Not an industry that new startups can disrupt easily.

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In the meantime, check out other insights and analyses that we have done. Continue learning so that you make better investment decisions.

Keep learning and happy investing. 🙂

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