Lockheed Martin Earnings: F-35 and Missile Defense Programs at Full Speed; Fair Value Estimate Up To $480

Lockheed Martin LMT reported second-quarter results on July 18 that surpassed management’s previous expectations and our forecast. We increased our fair value estimate from $441 to $480 per share to reflect accelerated production of F-35 fighter jets and increased activity in missile defense programs.

The second quarter’s highlights were F-35 deliveries and revenue, after Lockheed and the Department of Defense finalized terms for up to 126 more F-35s (known as Lot 17) and acceleration of a handful of missile defense systems in the later development phase. The remainder of Lockheed’s many programs and segments were mostly ho-hum, with a mix of offsetting gains and losses in the quarter. Also, compared with the same period in 2022, which was marred by lingering supply chain and contracting issues around Lot 17 F-35s that hampered deliveries and thus revenue recognition, the most recent quarter looked more normal in terms of the pace of revenue and deliveries as a proportion of the calendar year.

Other than slightly accelerating the timing of production and deliveries of F-35s in our forecast, which itself represents over a fourth of Lockheed’s annual revenue, our longer-term growth forecast for Lockheed remains unchanged, in which we see a tapering of growth to 4.6% annually and operating margins just under 12%.