Don't Underestimate Lockheed Martin
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The American Defense Industry is massive, catering to a market spread across five continents. American-based Lockheed Martin (NYSE: LMT) is a leading business of this industry and provides aerospace, technology, security and defense solutions to a global clientele. In terms of employed capital and overall market share, Lockheed ranks among the largest US-based international defense contractors in the world and earns nearly three quarters of its revenues through sale of military technologies. The stock has made significant progress in widening its competitive moat by developing a diversified portfolio of products and services.
Lockheed’s starting run in the current financial year was mediocre to say the least; profits declined by 30% year-on-year as a result of charges. However, analysts have also noticed how the stock has exceeded projected forecasts with gains of 11% year-on-year which is arguably the highest in the industry. Moreover, these figures also stand out when compared with the first quarter’s financial performance of its arch rival Boeing (NYSE: BA) which failed to match the positive upward drive of Lockheed with gains of only 3%.
Lockheed is currently having a favorable run in the market as the stock has risen sharply amidst renewed investor sentiment. This has largely been the result of recent news that the stock has some new strategic defense contracts in the pipeline. Lockheed has recently received a five-year $1.05 billion contract from the US Navy for cockpits and integrated systems. The stock has signed another contract with the US Air Force for missile systems and security systems, the estimated worth of which exceeds $21.5 million. Moreover, Lockheed is nearing completion of a final system test for Critical Missile Warning Satellite, a radically upgraded version of the Patriot Missile System.
These lucrative deals are well-timed initiatives that should promise to help the business generate higher revenues and greater cash flows. I believe that Lockheed currently holds a strong position in the stock market and that it has the capacity to go higher this year. The stock may even manage to push its price to earnings ratio past the current 11 mark. Furthermore, on earnings-per-share of $7.80, Lockheed offers investors $1 a share in dividends. This has greatly enabled the business to maintain a favorable dividend history with a yield of almost 4.5%.
Lockheed is a huge business with a massive market capitalization of more than $30 billion and average trading volume of more than 2 million. It easily dwarfs most of its competitors with its sheer size and the scope of its global operations. On an average, Lockheed receives a 7% share in the total US defense budget. Therefore, in the absence of a well-defined fundamental or sentimental reason, there is no reason why investors should ignore Lockheed.
Boeing is Lockheed’s traditional and has a massive share in global markets, an impressive market capitalization of nearly $56 billion and average trading volume exceeding 4.5 million. However, the stock’s recent performance has been sluggish and it has failed to report substantial gains. Although the stock’s price to earnings ratio of 14 is impressive, earnings per share of almost $5.5 have perpetually been overshadowed by Lockheed. Moreover, the stock pays $0.44 a share in dividends which is unimpressive against Lockheed’s $1 a share. Because Boeing earns revenues mainly through the sale of commercial airliners, it is confronted with stiff competition from its European competitors. Moreover, the stock has failed to contain the burgeoning costs of its contract with the Air Force, exceeding the budget by nearly $900 million, which in itself is an ominous signs for investors.
Northrop Grumman (NYSE: NOC) is another stock that has given Lockheed stiff competition. With a smaller market capitalization of around $15.5 billion, the stock has managed to maintain an average trading volume of almost more than 1.75 million which is impressive. Price to earnings ratio is healthy at 8.35 and the business pays nearly $0.50 in dividends on impressive earnings per share of $7.40. Although Northrop has an impressive portfolio and has managed to fare well in the last few fiscal quarters, the stock has mainly played the role of a forager. This means that it has only managed to scoop up relatively smaller military contracts as compared to the two bigger players, namely, Boeing and Lockheed. However, the stock’s recent initiative to form a strategic alliance with arch-rivals Lockheed is a step in the right direction as it should help the stock sustain burgeoning price levels.
Raytheon (NYSE: RTN) came onto the international stage when it won global acclaim for its Patriot Missile Defense System. With a total market capitalization of nearly $18 billion and average trading volume of almost 2.5 million, the stock has earned its place among the leading competitors of Lockheed. The stock has an impressive price to earnings ratio of almost 10 and pays $0.50 per share in dividends on earnings per share of $5.41. Therefore, although Raytheon’s financial indicators for the current year seem to be unimpressive when set against those of Lockheed, I strongly believe that it has all the qualities to make it a safe and viable investment option.
I have seen Lockheed rise to pressing challenges before and come out on top. Therefore, current challenges such as exceeding budgets of crucial military contracts, and resurfacing problems in the development phase of F-35 warplanes should not hinder the stock’s favorable momentum. The stock has also made some crucial breakthroughs that will help the company in widening its growth margins. One such development is the production optimization of JLTV which will allow the company to enjoy economies. Looking at leading financial indicators of the company, I believe that the stock is poised to widen its competitive moat substantially and aim for greater growth and greater cash flow in the current year. Therefore, I rate Lockheed as a viable investment option in the current year as compared to major competing stocks.
QueenBC has no positions in the stocks mentioned above. The Motley Fool 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.If you have questions about this post or the Fool’s blog network, click here for information.