Defense Stocks

Lockheed Martin Corporation Valuation – June 2016 $LMT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Lockheed Martin Corporation (LMT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lockheed Martin Corporation is a global security and aerospace company. The Company is engaged in the research, design, integration and sustainment of advanced technology systems, products and services. It operates in five segments: Aeronautics; Information Systems & Global Solutions (IS&GS); Missiles and Fire Control (MFC); Mission Systems and Training (MST), and Space Systems. Its Aeronautics segment is engaged in the development, manufacture, support and upgrade of advanced military aircraft. The IS&GS provides network-enabled situational awareness and integrates global systems to help its customers gather, analyze and securely distribute critical data. Its MFC segment provides air and missile defense systems, and logistics services. Its MST segment provides manufacture, service and support for various military and civil helicopters. Its Space Systems segment is engaged in the design, engineering and production of satellites.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LMT – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $73,333,674,587 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.06 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 51.01% Pass
6. Moderate PEmg Ratio PEmg < 20 21.95 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 23.31 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.06 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 16.75 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

LMT value chart June 2016

EPSmg $10.96
MG Growth Estimate 5.51%
MG Value $213.93
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $158.96
MG Value based on 0% Growth $93.18
Market Implied Growth Rate 6.72%
Current Price $240.58
% of Intrinsic Value 112.46%

Lockheed Martin Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $8.02 in 2012 to an estimated $10.96 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Lockheed Martin Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

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LMT charts June 2016

Net Current Asset Value (NCAV) -$101.41
Graham Number $52.34
PEmg 21.95
Current Ratio 1.06
PB Ratio 23.31
Current Dividend $6.30
Dividend Yield 2.62%
Number of Consecutive Years of Dividend Growth 14

Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $15,767,000,000
Total Current Liabilities $14,912,000,000
Long-term Debt $14,320,000,000
Total Assets $50,158,000,000
Intangible Assets $17,704,000,000
Total Liabilities $46,981,000,000
Shares Outstanding (Diluted Average) 307,800,000

Earnings Per Share History

Next Fiscal Year Estimate $11.67
2015-12 $11.46
2014-12 $11.21
2013-12 $9.13
2012-12 $8.36
2011-12 $7.81
2010-12 $7.94
2009-12 $7.78
2008-12 $7.86
2007-12 $7.10
2006-12 $5.80
2005-12 $4.10
2004-12 $2.83
2003-12 $2.34
2002-12 $1.11
2001-12 -$2.45
2000-12 -$1.29
1999-12 $0.99
1998-12 $2.63
1997-12 -$1.56
1996-12 $3.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $10.96
2015-12 $10.27
2014-12 $9.41
2013-12 $8.41
2012-12 $8.02
2011-12 $7.80
2010-12 $7.63
2009-12 $7.16
2008-12 $6.41
2007-12 $5.27
2006-12 $3.98
2005-12 $2.57
2004-12 $1.38
2003-12 $0.48
2002-12 -$0.23
2001-12 -$0.72
2000-12 $0.35

Recommended Reading:

Other ModernGraham posts about the company

34 Companies in the Spotlight This Week – 2/7/15
Lockheed Martin Corporation Annual Valuation – 2015 $LMT
14 Companies in the Spotlight This Week – 1/25/14
Lockheed Martin Corporation (LMT) Annual Valuation

Other ModernGraham posts about related companies

United Technologies Corporation Valuation – May 2016 $UTX
Raytheon Co Valuation – February 2016 $RTN
Rockwell Collins Inc Valuation – January 2016 Update $COL
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General Dynamics Corporation Valuation – January 2016 Update $GD
Precision Castparts Corporation Valuation – January 2016 Update $PCP
United Technologies Corp Valuation – November 2015 Update $UTX
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Raytheon Company Valuation – October 2015 Update $RTN
Precision Castparts Corporation Analysis – October 2015 Update $PCP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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