Boeing vs Lockheed Martin – Scorecard

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When I think of commercial jetliners I think of Boeing (NYSE: BA). When I think of defense contractors the first name that comes to mind is Lockheed Martin (NYSE: LMT). What many people might not realize is, these two companies actually compete in several different industries. Boeing and Lockheed both compete in the space exploration industry, they both have large defense contracts, and they both have intelligence operations. If you are looking for a play on aerospace and defense, either company might be a good choice. However, I always want to know which company is the best value. Let's compare the two and see who comes out on top.

<table> <tbody> <tr> <td> <p><strong>Name</strong></p> </td> <td> <p><strong>Price</strong></p> </td> <td> <p><strong>P/E On '12 Earnings</strong></p> </td> <td> <p><strong>Growth Expected</strong></p> </td> <td> <p><strong>PEG</strong></p> </td> </tr> <tr> <td> <p>Boeing</p> </td> <td> <p>$70.60</p> </td> <td> <p>15.83</p> </td> <td> <p>13.20%</p> </td> <td> <p>1.2</p> </td> </tr> <tr> <td> <p>Lockheed Martin</p> </td> <td> <p>$87.67</p> </td> <td> <p>11.13</p> </td> <td> <p>7.30%</p> </td> <td> <p>1.52 </p> </td> </tr> </tbody> </table>

With both the higher P/E ratio and the higher growth rate, it seems that Boeing is the better value. Though you have to pay up for Boeing's expected growth, the company is a play on the turnaround in the economy. Boeing's large commercial aircraft division is more dependent on a healthy airline industry. With the economy improving, Boeing stands to make a lot of money both in servicing these airliners and through new sales. (Boeing – 2, Lockheed – 1)

Considering the past few years of economic turmoil, any company showing positive earnings growth has done a good job. Boeing shows a decline of 2.81% in EPS over the last 5 years, Lockheed grew EPS by 2.23%. Even though both companies did an admirable job of trying to maintain during the last 5 years, Lockheed gets this category by virtue of positive earnings growth. (Boeing – 1, Lockheed – 2)

When looking at what company will do better in the future, I always check to see if the company is meeting or missing prior estimates. Companies that beat earnings estimates on a regular basis, should outperform in the future if the trend continues. Look at the huge difference between how these two companies have done in the last four quarters:

<table> <tbody> <tr> <td> <p><strong>Name</strong></p> </td> <td> <p><strong>Beat Estimates</strong></p> </td> <td> <p><strong>Missed Estimates</strong></p> </td> <td> <p><strong>Avg. Beat Or Miss</strong></p> </td> </tr> <tr> <td> <p>Boeing</p> </td> <td> <p>4</p> </td> <td> <p>0</p> </td> <td> <p>38.55%</p> </td> </tr> <tr> <td> <p>Lockheed</p> </td> <td> <p>0</p> </td> <td> <p>4</p> </td> <td> <p>-1.38% </p> </td> </tr> </tbody> </table>

Boeing has been crushing analyst estimates each quarter. Even more impressive is, Boeing has increased its earnings beat every quarter in the last year. Four quarters ago, Boeing beat estimates by 11.40%, in the most recent quarter the company beat estimates by 81.20%! (Boeing – 2, Lockheed – 1)

Yield is an important factor in total market returns. If one company has a higher dividend, and is growing that dividend, this can lead to market beating returns. This is another category where both companies are doing well, but Lockheed is beating out Boeing by all three measures.

<table> <tbody> <tr> <td> <p><strong>Name</strong></p> </td> <td> <p><strong>Yield</strong></p> </td> <td> <p><strong>Dividend Growth</strong></p> </td> <td> <p><strong>Free Cash Flow Payout Ratio</strong></p> </td> </tr> <tr> <td> <p>Boeing</p> </td> <td> <p>2.49%</p> </td> <td> <p>6.73%</p> </td> <td> <p>53.85%</p> </td> </tr> <tr> <td> <p>Lockheed</p> </td> <td> <p>4.56%</p> </td> <td> <p>20.44%</p> </td> <td> <p>31.84% </p> </td> </tr> </tbody> </table>

Lockheed not only pays a dividend that is nearly twice as high, but the company is also growing this dividend by nearly three times the rate of Boeing. To top this category off, Lockheed is also paying out much less of its free cash flow and in theory could continue this higher dividend growth rate. (Boeing – 1, Lockheed – 2)

In our last test, we'll compare the balance sheets of the two companies. With the huge investments required by both companies to develop technologies like multi-million and sometimes multi-billion dollar jets and systems, it's not a big surprise that both companies carry large amounts of debt. Boeing's debt-to-equity ratio is 2.85 and Lockheed Martin shows a ratio of 6.45. With both companies showing significant cash flow, this high debt load is not a problem yet. However, the lower relative debt level at Boeing gives the company more flexibility. (Boeing – 2, Lockheed – 1)

Our final scores are Boeing 8 and Lockheed 7. It's a close race, but in my eyes it comes down to two different factors. If you are looking for growth, Boeing appears to have the better growth story. The company is a turnaround play on the airline industry, and has both the better growth rate, and the better history of beating earnings estimates. If you are looking for dividends, Lockheed could be the better bet. The company not only has a much higher yield, but they also have three times the dividend growth rate, and a lower payout ratio. In this comparison, I like Boeing slightly better. While a higher dividend is nice, Boeing's potential growth could be more important to total returns. Lockheed's higher reliance on defense contracts is something that is less predictable. While the company's dividend and growth looks better right now, defense cuts could change the ratios quickly. Use these numbers as a starting point for your own research and see if either company deserves a spot in your portfolio.

The Motley Fool owns shares of Lockheed Martin. MHenage has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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