Summary
Fair value for the stock is between $360 to $375 per share.
The company is benefiting from a strong defense budget and continues to raise revenue and EPS guidance into 2019.
With pension contributions finished and F-35 production ramping, the company will increase free cash flows materially from current levels heading into 2019 and 2020.
With a 10% dividend raise and increasing buyback, the company remains committed to returning capital to shareholders.
The Opportunity
Lockheed Martin (LMT) continues to execute and capture funds from the expanding Department of Defense budget. The company executed an impressive third quarter and a post earnings drop combined with an overall defense sector sell off has created an attractive longer term investment opportunity for patient investors.
The business is strong and will remain so until the 2020 presidential elections. The outlook past 2020 is contingent on whether Democrats or Republicans gain control of the government. In the mean time, the company is growing the top line in the mid single digits annually ~5% and continues to guide top and bottom lines higher into 2019. We can expect increasing overall cash returned to shareholders, as the company just increased their annual dividend by $0.80 and added an additional $1 billion buy back authorization.
