Summary
- LMT is a significant aerospace and defense company that is also becoming a major space exploration contractor.
- The company's F-35 program has issues, but it continues to be a source of almost guaranteed government purchasing into the next decade.
- LMT has a strong dividend that is well covered and likely to grow annually.
- LMT appears substantially undervalued, but its assets could be rewarded a premium in the coming quarters.
Lockheed Martin Corporation (NYSE:LMT) stock is getting cheap. Lockheed is a global aerospace company that primarily sells its products to the U.S. Department of Defense, as well as related federal agencies. The U.S. government makes up about 70% of Lockheed's sales, with the bulk of the remainder coming from wealthy allied nations.
Lockheed Martin is primarily known for its advanced fighter aircraft, such as the F-35. There have been some issues with the F-35's operations, and this has become a minor embarrassment that is likely contributing to the apparent stock discount. Lockheed also sells helicopters, missiles, fire control systems, and space systems. The significance of these businesses makes companies like Lockheed systemically important. This market often provides a premium to such secure backlogs, but that premium now appears absent and Lockheed's assets seem to be available at a discount.
In particular, it appears Lockheed is getting little to no credit for the potential growth within space systems over time. Space exploration and tourism have become investment themes, and Lockheed is likely to be a strong market participant in these developing industries. Lockheed is also trying to acquire Aerojet Rocketdyne (AJRD), which, if approved, will give Lockheed much more exposure to deep space revenue.
The jets
Lockheed's primary product is the F-35, and there have been some recent issues. Lockheed did have to slow down its production of F-35s due to Covid-19-related changes to operations, and also due to supply chain disruptions. For example, some models may degrade their stealth coating by flying supersonic. There have been some other systems issues as well.
Despite these problems, demand for the product continues to be strong. The United States and the nations to which it permits Lockheed to sell F-35s continue to demand more of the jets than Lockheed can build. The company was in the process of ramping up production before the pandemic, but delays related to it and the program issues have slowed the ramping process.
Lockheed's older F-16 fighter program continues to be a good source of revenue. These aircraft are mostly bought and upgraded internationally. Nations such as Greece, Slovakia, and Bahrain are within the F-16 program. Existing and growing fleets of F-35s and F-16s generate revenue from maintenance and major upgrading programs over time.
Last year, James D. Taiclet was elected president and CEO of Lockheed. Taiclet was already on Lockheed's board, and is a great selection for Lockheed in general, but also to oversee the improvement of F-35 production and performance. Before leading Lockheed, he was the CEO of American Tower Corporation, where he oversaw its ascendence to a giant within the broadband infrastructure industry. Prior to joining American Tower in 2001, Taiclet was president of Honeywell's Aerospace Services unit, and prior to that was vice president, Engine Services at Pratt & Whitney. Taiclet was also a U.S. Air Force officer and pilot that served a tour of duty in the Gulf War.























