Defense Stocks

Lockheed Martin Corp Valuation – February 2018 $LMT

Company Profile (obtained from Marketwatch): Lockheed Martin Corp. engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services. It operates through the following segments: Aeronautics, Missiles & Fire Control, Rotary & Mission Systems, and Space Systems. The Aeronautics segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. The Missiles & Fire Control segment provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and unmanned ground vehicles, and energy management solutions. The Rotary & Mission Systems segment provides design, manufacture, service and support for a variety of military and commercial helicopters; ship and submarine mission and combat systems; mission systems and sensors for rotary and fixed-wing aircraft; sea and land-based missile defense systems; radar systems; the Littoral Combat Ship (LCS); simulation and training services; and unmanned systems and technologies. The Space Systems segment engaged in the research and development, design, engineering and production of satellites, strategic and defensive missile systems and space transportation systems and it also provides network-enabled situational awareness and integrates complex global systems to help customers gather, analyze and securely distribute critical intelligence data. The company was founded in March 1995 and is headquartered in Bethesda, MD.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LMT – February 2018

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 $100,646,579,793 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.38 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 66.34% Pass
6. Moderate PEmg Ratio PEmg < 20 28.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -148.87 Fail
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 1.38 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.80 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

EPSmg $12.38
MG Growth Estimate 4.75%
MG Value $222.73
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $179.52
MG Value based on 0% Growth $105.24
Market Implied Growth Rate 9.98%
Current Price $352.44
% of Intrinsic Value 158.23%

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 $9.41 in 2014 to an estimated $12.38 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Lockheed Martin Corporation revealed the company was trading above its Graham Number of $0. The company pays a dividend of $7.46 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 28.47, which was below the industry average of 32.41, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-103.1.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$103.10
Graham Number $0.00
PEmg 28.47
Current Ratio 1.38
PB Ratio -148.87
Current Dividend $7.46
Dividend Yield 2.12%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $17,461,000,000
Total Current Liabilities $12,637,000,000
Long-Term Debt $13,513,000,000
Total Assets $46,521,000,000
Intangible Assets $14,604,000,000
Total Liabilities $47,204,000,000
Shares Outstanding (Diluted Average) 288,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $14.31
Dec2017 $6.89
Dec2016 $17.49
Dec2015 $11.46
Dec2014 $11.21
Dec2013 $9.13
Dec2012 $8.36
Dec2011 $7.81
Dec2010 $7.81
Dec2009 $7.64
Dec2008 $7.86
Dec2007 $7.10
Dec2006 $5.80
Dec2005 $4.10
Dec2004 $2.83
Dec2003 $2.34
Dec2002 $1.11
Dec2001 -$2.45
Dec2000 -$1.29
Dec1999 $0.99
Dec1998 $2.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $12.38
Dec2017 $11.36
Dec2016 $12.90
Dec2015 $10.27
Dec2014 $9.41
Dec2013 $8.39
Dec2012 $7.97
Dec2011 $7.74
Dec2010 $7.55
Dec2009 $7.11
Dec2008 $6.41
Dec2007 $5.27
Dec2006 $3.98
Dec2005 $2.57
Dec2004 $1.38
Dec2003 $0.48
Dec2002 -$0.23

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

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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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