Lockheed Martin Corporation is one of the largest defense and aerospace companies in the world. The company produces advanced technology systems, products, and services. It is known for making the world’s most advanced aircraft and is a global leader in rotorcraft technology, sensors, radar systems, combat simulation and training, and advanced cybersecurity.
Lockheed Martin provides a wide range of management, engineering, logistics, system integration and cybersecurity services for defense, civil and commercial applications. The company is best known for its F-35 fighter jet which generated 27% of its total sales in 2018.
Lockheed Martin operates through four business segments:
- Aeronautics (40% of 2018 sales),
- Missiles and Fire Control (16%),
- Rotary and Mission Systems (26%) and
- Space (18%).
The company is known for designing some of the finest military aircraft and security systems in the world.Investment Data
- Opportunity Score: 73
- Ticker: NYSE:LMT
- Sector: Industrials
- Industry: Aerospace & Defense
- Market Cap: 107.73B
- P/E: 18.59
- Dividend Yield: 2.52
- Dividend Payout Ratio: 46.44
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Lockheed Martin provides defense, civil and commercial applications to both U.S. and international customers. The U.S. government is Lockheed’s primary customer accounting for 70% of its revenues in 2018. International customers including foreign military sales (contracted through the U.S. Government) comprised the remaining 28%, followed by U.S. commercial and other customers. Lockheed has several long-term contracts with government organizations adding to the reliability and predictability of its cash flows. It is also focusing on expanding its international presence.
With over a century old existence, Lockheed Martin has developed close ties with its customers and suppliers which has resulted in sticky relationships. Lockheed’s product and services quality, brand reputation and proven performance often result in winning new orders easily. The company is known for delivering the most advanced aircraft and aviation technologies in the world. Its F-35 program carries a strong reputation globally.
Lockheed Martin is a giant global defense company offering unique products and services. The company spent approximately 2.4% of its revenues last year on R&D activities. Given Lockheed’s wide product portfolio catering to mission critical areas such as defense, space, intelligence, and homeland security, it is almost impossible to find an alternative to its impeccable products and services. Strict government laws and regulations, extensive R&D and a huge patent portfolio also act as significant entry barriers for newcomers.
Proven performance, strong industrial partnerships, and extensive global presence are Lockheed Martin’s key competitive strengths. The company stands a good chance to benefit from the increasing global security concerns and the U.S. government’s strong focus on defense. Lockheed witnessed growth across all its businesses in the most recent quarter. Its backlog, which is likely to grow over time, reached a record $137 billion during the quarter. Lockheed also upgraded its revenue and profit outlook for the whole year. The company is expanding its production to enable a robust supply chain in order to meet rising demand. Lockheed met its production targets for 2018, delivering 91 aircraft, a 40% increase over 2017. As the company expands and revamps its production facilities, it continues to make its aircraft increasingly affordable for the customers. Lockheed’s revenues grew at more than 6% CAGR in the last five years.
Lockheed Martin is a solid long-term dividend growth investment. It paid ~$3.8 billion of cash to shareholders through dividends and share repurchases and generated ~$3 billion in cash from operations in the last year. The company is a Dividend Achiever with an impressive double-digit dividend growth history. It returned 59% of its cash flows to shareholders in 2Q’19 and last raised its dividend by 10%. LMT has grown dividends at an impressive 16.2% CAGR over the last decade and has a payout ratio of only 42%. Lockheed sports a current average yield of 2.3%.
Lockheed Martin owns a diverse range of defense, homeland security and information technology products and services. Its earnings have registered a healthy growth of 15% CAGR in the last three years. Lockheed’s business is highly capital intensive. Tight government regulations in the defense sector and ownership of a substantial number of U.S. and international patents are other significant deterrents for competitors to enter this business. It will be tough for the competition to replicate LMT’s portfolio.
Lockheed Martin is a strong cash flow generator, which has supported the company’s spending for its operations, capital expenditures, and other repayments. The company has contracts that span one or more base years and multiple option years with the U.S. government. This adds strong visibility to its cash flows. Production of the aircraft is expected to continue in the coming years given the U.S. Government’s increasing inventory objective. Given Lockheed’s strong order backlog and improved outlook, the company should keep increasing its dividend comfortably in the high single-digit pace in the future as well.
Lockheed Martin competes with other large aerospace and defense companies, as well as numerous smaller competitors. Few of the large players in the industry are General Dynamics, L3 Technologies, Raytheon Company, Northrop Grumman, etc. General Dynamics is a world-leading aerospace and defense company while L3 Technologies ranks amongst the top ten defense contractors in the world. Raytheon Company is a leading technology company providing defense, civil government and cybersecurity solutions to both domestic and international customers, and Northrop Grumman is a premier provider of military aircraft, autonomous and space systems, and innovative defense and security solutions.
Increasing global geopolitical risks and the U.S. government’s focus on defense provides strong tailwinds for the defense business. Lockheed’s broad product portfolio and proven performance should continue to drive shareholder value in the future as well.
Steady performance with a decent yield makes LMT a stock worth considering. Only question, is if you like it more than the competition.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.