Summary
- Lockheed Martin achieved record high sales and operating profits despite it being a tough year in 2020.
- Lockheed Martin stock has very little downside: the business is stable and easy to predict and the management improved the current and debt/equity ratios during the past five years.
- Lockheed Martin is not just a dividend stock pick, but has excellent growth prospects due to the current geopolitical situation.
- The management is focused on constantly increasing shareholder value through dividends and buybacks and they will continue to do so as they have a healthy balance sheet.
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Investment Thesis
Lockheed Martin Corp. (NYSE:LMT) is an undervalued stock trading in an overvalued market. According to the Shiller PE Ratio (at 35.75 as of 26 March 2021), the current market is trading higher than the Black Tuesday and Black Monday maximums. In fact, the current market Shiller P/E Ratio is the second-highest in history. In such an overvalued market Lockheed Martin looks like a forgotten jewel.
The company is solid as it improved its income statement results year by year over the last five years and its balance sheet is currently healthier than it was a few years ago. Debt is still high, but the management is focused on reducing leverage as well as increasing shareholder value through both dividends and buybacks. In addition, due to geopolitical factors, the defense sector seems to have a promising future in the coming years. In our opinion, Lockheed Martin is well-positioned to benefit from sector growth thanks to its excellent and unique products like F-35 and Black Hawk helicopters, among others.
Business at a Glance
Lockheed Martin mainly specializes in the research, design, manufacturing, and marketing of aerospace, submarine, and global security systems and products accounting for 84% of the company's net sales in 2020. The company also provides a vast range of global security services such as logistics, cybersecurity, engineering, and system integration. The services revenues account for 16% of total net sales.
From a geographical perspective, nearly 75% of total net revenues stem from United States customers (mainly U.S. government).
Net sales can be broken down as follows:
- Aeronautics (40%), producing military and civilian aircraft with the F-35 program generating roughly 27% net sales, reporting 11% growth in 2020;
- Rotary and Mission Systems (25%), manufacturing military and commercial helicopters (such as Black Hawk and Seahawk) and servicing defense missile systems with 6% growth in 2020;
- Space (18%), producing satellites and space transportation systems, reporting 9% growth in 2020;
- Missiles and Fire Controls (17%), providing mainly air and missile defense systems, tactical missiles, precision-strike weapons systems, with 11% annual growth in 2020.
