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Stock Analyst Update

Declining Sales Limit Lockheed Martin's Upside

But aircraft orders improve its short-term outlook.

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Despite a 5% revenue decline during the first six months of 2000, Lockheed Martin (LMT) was able to substantially raise guidance for free cash flow for the year. And, although a record backlog puts the company in a position to grow free cash flow through 2001, the lack of growth opportunities and intense competition may limit the stock’s long-term prospects.

Lockheed boosted estimated cash-flow numbers to $900 million from $500 million for 2000 and to $1.7 billion from $1.3 billion for next year. Part of this is coming from the nearly $17 billion in new orders secured during the second quarter, which increased the backlog to a record $57 billion. In fact, a $6.4 billion order for F-16s from the United Arab Emirates included a cash advance of $900 million, which, after subcontractor payments, will provide an additional $200 million to $300 million in free cash flow this year.

Richard Wilson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.