Company Reports

Lockheed derived nearly 75% of its $67.6 billion in 2023 sales servicing contracts from the US Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined decadeslong revenue and profit streams.

Lockheed Martin reported first-quarter 2024 results on April 23, in which some programs delivered double-digit growth, with cost growth in other areas muting overall results. We saw over $2 billion in revenue appear sooner in the year than we anticipated. Still, only $100 million translated to operating profit in the first quarter, which we hadn't already forecast. Management reiterated its 2024 expectations, we did not change our forecast, and we are raising our fair value estimate for the wide-moat defense juggernaut to $486 from $482, essentially only for the time value of money.

We are reviewing President Joe Biden's fiscal 2025 defense budget request, released March 11, which is limited by a compromise struck in mid-2023 to avoid government shutdown at only a 1% increase over the 2024 sum.

Lockheed Martin reported final 2023 results on Jan. 23, reflecting fairly flat revenue and steady but not compelling margin results. Management shared 2024 expectations broadly in line with our longer-term expectations and we are maintaining our $482 fair value estimate for this wide-moat stalwart of the defense industry. We see Lockheed as breathing a relatively thin atmosphere, as its wide portfolio of programs consistently ranks the company as the largest defense contractor in the world by revenue, and few of its programs can move its nearly $70 billion revenue needle.

Lockheed derived more than 70% of its $66 billion in 2022 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined decadeslong revenue and profit streams.

Lockheed derived more than 70% of its $66 billion in 2022 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined decadeslong revenue and profit streams.

Lockheed Martin reported third-quarter results on Oct. 17 reflecting single-digit growth and fairly stable profits across most of its businesses. Management reaffirmed its 2023 expectations and increased its planned share repurchases by $2 billion. We have slightly increased our fair value estimate from $480 to $482 per share due to minor adjustments to our long-term forecasts.

We see Oct. 9, 2023's sudden price increase in defense stocks as an overblown and simplistic reaction to the outbreak of war in Israel and Gaza. As we have pointed out before, the dots between military combat and the profit of a defense contractor do not connect nearly as directly as they seem to in the investing public's imagination. We will not alter our ratings or valuations of defense contractors in light of this news, and we believe long term development and resupply of missile defense technology are already baked sufficiently into our forecasts.

Lockheed Martin 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.

Lockheed derived more than 70% of its $66 billion in 2022 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined decadeslong revenue and profit streams.

Lockheed Martin reported first-quarter results on April 18 very much in line with management's previous expectations and our forecast. We increased our fair value estimate by just over 1% to reflect the time value of money—those forecasts are closer on April 18 than when we last published our model at the end of January.

Lockheed derived more than 70% of its $66 billion in 2022 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined, decades-long revenue and profit streams.

Lockheed derived more than 70% of its $66 billion in 2022 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined, decades-long revenue and profit streams.

Wide-moat-rated Lockheed Martin reported solid fourth-quarter results as the company continues to navigate through supply chain headwinds and rising demand amid geopolitical turmoil. Lockheed Martin reported $66 billion in 2022 sales (down 2% year over year) and generated a business segment operating margin of 10.9% (down 10 basis points year over year). Management offered 2023 guidance, implying flat sales and modestly lower segment operating margin due to ongoing production bottlenecks and changes in portfolio mix. Nonetheless, geopolitical turmoil stoked an increase in backlog during the year, providing strong order visibility as management expects to return to top-line growth in 2024. We do not anticipate materially changing our $437 per share fair value estimate, though we’ll revisit our modeling assumptions after Lockheed Martin’s 10-K is filed.

Lockheed derived more than 60% of its $67 billion in 2021 sales servicing contracts from the U.S. Department of Defense, the largest military budget on Earth, and stands to operate the largest defense procurement program ever awarded (F-35) through the 2060s. Thus, as a bet on the defense industry, Lockheed is hard to beat. Biggest isn't always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined, decades-long revenue and profit streams.

We have taken a fresh look at Lockheed Martin, and have shaved $10 from our fair value estimate, arriving at $437 per share, to account for the slow unwinding of bottlenecks in its labor and components supplies, which delay revenue recognition and add to costs as work drags out over time.

We think Lockheed Martin's exposure to the F-35 program, hypersonic missiles, and the militarization of space is well aligned with areas of secular growth in the defense budget. The defense budget is a political process, which is inherently difficult to predict. Therefore, we favor companies with tangible growth profiles through a steady stream of contract wins, ideally to contracts that are fulfilled over decades. Thankfully for defense investors, many programs are procured and maintained over decades. For instance, the F-35, which accounts for about 30% of Lockheed's revenue, will be maintained through 2070. Regulated margins, mature markets, customer-paid research and development, and long-term revenue visibility allow the defense primes to deliver a lot of cash to shareholders, which we view positively because we don’t see substantial growth in this industry.

Wide-moat-rated Lockheed Martin reported solid third-quarter results as the company continues to grapple with persistent supply chain headwinds and a tumultuous geopolitical environment. Sales of $16.6 billion modestly missed FactSet consensus, while adjusted EPS of $6.87 outpaced consensus by 3%. Management reaffirmed 2022 guidance amid strong domestic and international demand, with geopolitical turmoil stoking an increase in backlog. However, management acknowledged the slow abatement of supply constraints, leading to a flat 2023 sales guide. We have maintained our $447 fair value estimate as we believe our long-term thesis remains intact.

We think Lockheed Martin's exposure to the F-35 program, hypersonic missiles, and the militarization of space is well aligned with areas of secular growth in the defense budget. The defense budget is a political process, which is inherently difficult to predict. Therefore, we favor companies with tangible growth profiles through a steady stream of contract wins, ideally to contracts that are fulfilled over decades. Thankfully for defense investors, many programs are procured and maintained over decades. For instance, the F-35, which accounts for about 30% of Lockheed's revenue, will be maintained through 2070. Regulated margins, mature markets, customer-paid research and development, and long-term revenue visibility allow the defense primes to deliver a lot of cash to shareholders, which we view positively because we don’t see substantial growth in this industry.

Wide-moat-rated Lockheed Martin posted a revenue decline and improved segment operating margins during the second quarter as the firm awaits additional funding on the F-35 Lots 15-17. Sales of $15.4 billion and earnings per share of $1.16 missed FactSet consensus estimates by 3.3% and 38.3%, respectively. We note that quarterly earnings were highly impacted by a non-cash pension risk transfer. After adjusting our near-term sales outlook slightly downward, we are increasing our fair value estimate for Lockheed Martin to $447 from $445 due to the time value of money.