Lockheed Martin Corporation (LMT) Annual Valuation

moneyCompany Profile (obtained from Google Finance): Lockheed Martin Corporation is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. The Company also provides a range of management, engineering, technical, scientific, logistic, and information services. It serves both domestic and international customers with products and services that have defense, civil, and commercial applications, with its principal customers being agencies of the United States Government. It operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST), and Space Systems. In July 2013, Lockheed Martin Corporation launched Lockheed Martin International. In September 2013, Lockheed Martin Corporation announced the acquisition of Amor Group.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $115.77
MG Opinion Overvalued
Value Based on 3% Growth $121.93
Value Based on 0% Growth $71.47
Market Implied Growth Rate 4.90%
Net Current Asset Value (NCAV) -$73.40
PEmg 18.29
Current Ratio 1.15
PB Ratio 38.58

Balance Sheet – 9/30/2013 

Current Assets $14,119,000,000
Current Liabilities $12,293,000,000
Total Debt $6,156,000,000
Total Assets $38,907,000,000
Intangible Assets $10,534,000,000
Total Liabilities $37,630,000,000
Outstanding Shares 320,310,000

Earnings Per Share

2013 (estimate) $9.40
2012 $8.36
2011 $7.85
2010 $7.18
2009 $7.78
2008 $7.85
2007 $7.10
2006 $5.80
2005 $4.09
2004 $2.83
2003 $2.34

Earnings Per Share – ModernGraham 

2013 (estimate) $8.41
2012 $7.88
2011 $7.61
2010 $7.37
2009 $7.15
2008 $6.40


Lockheed Martin has some excellent qualities, but does not quite qualify for either the Defensive Investor or the Enterprising Investor.  The company has too low a current ratio, and too high a PB ratio for the Defensive Investor.  For the Enterprising Investor, the high level of debt relative to net current assets is the deciding factor.  Therefore, value investors seeking to follow the methods of Benjamin Graham should seek other opportunities, beginning by reviewing ModernGraham’s analysis of The Boeing Company (BA).  From a valuation perspective, the company has seen growth in EPSmg (normalized earnings) from $7.15 in 2009 to an estimated $8.41 for 2013.  This moderate growth is good to see, but does not support the market’s implied growth rate of 4.9%.  As a result, the company appears to be overvalued at the present time.

What do you think?  What value would you put on Lockheed Martin?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Lockheed Martin (LMT) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill





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