Boeing Got the Order, But Lockheed’s Still The Better Option
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Boeing’s recent order from Indonesia’s Lion Air for 230 planes puts a cap on what has been a pretty amazing three months. An $18 billion order from Emirates Airlines was quickly followed by an even bigger $19 billion deal with Southwest Airlines toward the end of last year. And now Boeing (NYSE: BA) has topped them all with the $22.4 billion contract with Lion. The race for supremacy in 2012 with world-leading plane manufacturer Airbus is definitely off and running.
Boeing will still have to answer the critics regarding their delivery issues, something that haunted the company in ’11, but betting against them wouldn’t be a good use of funds. Having said that, Lockheed Martin (NYSE: LMT) is still the better investment option. If you’re a Boeing shareholder, your dollars are safer than they would be in a lot of companies; it’s the potential for upside that’s lacking. That, and a dividend that doesn't compare favorably to some others in the industry.
When LMT was initially written up in late January, many of the same reasons were in place for making the firm the cream of the aerospace crop. At the time Lockheed was trading around $82 a share and paid a dividend of 2.64%.
So other than some nice growth, what’s changed? Not much, except a few improvements along the way. Lockheed still boasts strong operating cash flow -- the highest it’s been in four years. What’s also nice to see is this comes on the heels of three straight years of growth. LMT’s balance sheet remains healthy with more than $3.5 billion in cash, as do annual revenues that have continued to increase. These all help offset a drop in revenue in Q4 of ’11 vs. the fourth quarter of 2010.
The company is still one of the cheapest in the sector as well, trading at just over 11 times earnings. This compares to 14.14 for BA, which is hardly expensive mind you. But if we use the same multiple for Lockheed, investors are looking at a $110 stock – up from today’s $88.25. Yes, LMT’s share price is bumping up against the company’s 52-week high, but other than some initial resistance the pieces are in place to break through, and sooner as opposed to later.
One thing that has changed is Lockheed’s dividend yield -- at 4.53% it’s second only to Embraer’s (NYSE: ERJ) 5.27%. Of course ERJ trades at over 16 times earnings, so clearly investors have to give a little to get a little. In ERJ’s case, what they’ve given is growth for yield. Nothing wrong with that of course, but LMT is one of the few that offers both.
Value hunters will point out Northrop Grumman (NYSE: NOC) is the cheapest in the sector, but that’s as it should be. 2011 ended with NOC reporting declining revenues – to levels last seen in 2008 – so not surprisingly both Lockheed and Boeing are better options.
Kudos certainly go out to Boeing for bringing this order in -- when a company like BA start’s breaking records you know the numbers are going to be big. But for investors, Lockheed remains the better investment option in 2012, for growth and yield.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.