Hi I'm Jimmy in this video
I'm going to walk through a quick
analysis of Lockheed Martin stock
ticker symbol LMT
Lockheed Martin is an aerospace and
defense company and it pays
a pretty good dividend.
Now I actually got quite a few
videos asking for an analysis
of Lockheed Martin.
And given the question
marks surrounding how long the stock
market can keep running
well I thought it made a lot of
sense to do an analysis of Lockheed
Martin which could be a great
defensive stock to own.
Plus it has the added bonus of
consistently playing paying pretty
good dividends.
So first we got to look at their
segments and then quickly at their
financials and then finally
we're going to try to calculate the
fair value of Lockheed Martin stock
using this kind of cash flow.
OK. So Lockheed Martin operates in
four main segments.
They have aeronautics Rotary and
Mission Systems.
Then they have space and then their
last segment their small segment is
missiles and fire control.
OK let's start the largest
contributor to revenue.
Aeronautics to Lockheed Martin's
aeronautics division.
accounts for about 40 percent of
total revenue in 2018.
With a bit over twenty one billion
dollars in revenue.
Now their primary
customers are government agencies
with the US government accounting
for about 63 percent of this
segments total revenue.
Now typically I'd be concerned if a
company's largest segment was
dominated by one customer.
Typically they call that customer
concentration risk.
But in this case this is the
US government and I think that it's
somewhat unlikely that the US
government is going to stop funding
the military.
Now one of the main products of this
division sells to the US
government and other government
agencies around the world.
Is fighter planes in fact right
now and for the past few years their
main fighter plane the F 35.
Now in the first quarter of
2019 Lockheed Martin
delivered 26 f 35
planes to various countries around
the world and that helped push their
revenue up by 27
percent from the same
quarter of 2018.
This is what revenue looks like for
the aeronautics division of LMT.
And this chart goes back to 2009
and as we could see it's been fairly
consistent and expectations are
that we'll continue to move higher
in the coming years.
In fact the Pentagon has come out
and said that one of their top
priorities is to replace
many of the aging fighter jets
in the US Air Force.
And that seems like a pretty good
thing for LMT stock especially
with their f 35 series.
OK. Back to the pie chart.
Now the next largest segment is
their rotary and Mission Systems
division. Now this segment
accounted for about 26 percent
of revenue with about 14 billion
dollars in revenue during 2018.
Now the U.S. government made up
about 71 percent of
that revenue.
So once again customer concentration
risk. But at this point I'm not too
concerned.
This division designs manufactures
and services a handful of military
and commercial helicopters.
They have ship and submarine mission
and combat systems sea
and land missile defenses.
And then they have some radar
systems and some simulation
and training programs things along
those lines.
Now this is the revenue go back to
2011.
And as we could see it seems to be
heading in the right direction.
Now this division is also off
to a pretty good start in 2019
with a jump of about 17 percent
in revenue compared to the first
quarter of 2018.
So a good start for 2019 and for
the first two divisions.
Now this segment of
revenue was driven mostly by
improved sales in their radar
systems and their combat rescue
helicopters and then a few others
you know back to the pie chart.
OK. The next division is space.
So the Lockheed Martin Space
division is kind of about 18 percent
of revenue in 2018.
And in this division the
U.S. government accounted for about
84 percent of revenue.
So there's that issue again.
But either way what this segment
does is they design and build
satellites spaceships
advanced strike systems defensive
systems things along those lines.
I also know that they're working
with SpaceX and what they're doing
they're working with the United
Kingdom on nuclear
deterrence program.
They're also working with NASA.
And I know that they're modernizing
the U.S. Air Force's G.P.S.
systems.
So they're doing a lot of things in
that type of area.
This is the revenue for LMT space
division. And as we could see it's
climbing along at a decent pace.
It's not growing quite as fast as
some of the other segments are in
the first quarter this year put up
about 13 percent growth.
So decent but not as good
as the first two segments.
Now LMT said that
this growth for this segment
was mostly from high government
sales in their satellite programs.
OK now we jump over the LMT smallest
divisions missiles and fire control.
Now this segment pulled in about 16
percent of LMT's total revenue in
2018.
This segment makes air and missile
defense systems they do air
to ground precision strike weapons
systems tactical missiles
manned and unmanned vehicles
fire control systems.
And the list goes on and on.
Now this segment had the best
performance to kick off Q1 with a
40 percent jump in revenue when
compared to the first quarter 2018
LMT said the most that that
growth came mostly from
increased sales in their new
hypersonic missiles program
and their precision fire program.
So this is what the historical
revenue for this segment looks like.
OK not bad.
So overall we've seen that each of
the segments have shown pretty
good signs of historical growth
and they've shown pretty good growth
in early 2019.
So this is a chart of total company
revenue. And as you could see this
chart goes all the way back to 2002.
And what strikes me about this is
two main things.
First we had a dip in 2015
although not too concerned about
that. I get to why in a second.
But the reason I go back all
the way to 2002 with this chart
is because this is the great
recession.
And what strikes me about that is
that LMT's
revenue seems to be unfazed
by what happened what was happening
with the general economy at the
time. Now that's not to say that
Lockheed stock wasn't down during
this time period.
It was this is a chart of Lockheed
Martin stock from the end of 2007
to the end of 2009.
And as we could see LMT was
down about 25 percent during
this time period.
But since the end of 2009
LMT stock was up about
550 percent compared
to the S&P 500 which was up
about one hundred seventy one
percent. So clearly they have
significantly outperformed since
this time period.
So it seems that one of the reasons
for the enormous difference in the
total return numbers by the way
all the numbers that I just
mentioned were total return numbers
which assumes that we reinvested
all the dividends of both LMT stock
and the S&P 500 back into
those that we came up those returns.
Either way one of the reasons
that LMT would have such significant
performance compared to the stock
market was the fact that their
revenue wasn't hurt too bad during
that time period neither was their
earnings per share ever since
that same time period.
Well this makes LMT stock a prime
candidate as a defensive stock
and LMT stock also has the
advantage of being a good dividend
payer with a dividend yield of a bit
shy of two and a half percent.
So the question is what is LMT
stock worth today and does it
make sense to add LMT stock to
any of our portfolios at its current
price.
So this is a discounted cash flow a
fair value calculation for LMT
stock. And if you're wondering how
to calculate this actually done
more in-depth videos on this very
topic you'll find a link in the
description below to those videos.
But basically what I did is I took
analyst expectations for free cash
flow and then we discounted
those by our weighted average cost
of capital. For that we use seven
and a half percent.
We used the perpetual growth rate of
two and a half percent and then
that gave us a fair value of about
four hundred eight dollars per
share. That's not too bad when we
consider that Lockheed Martin's
current stock price is about three
hundred sixty dollars per share.
So despite all the growth at LMT as
shown it looks like there still may
be a bit of upside.
So now we can look at some
comparables LMT stock currently
has a PE ratio of about 18 x
while the S&P is sitting at about 19
x so that looks like a pretty good
thing for LMT stock.
But if we were to compare LMT
to a company like Northrop Grumman
well NOC is trading at about
14 x so
LMT is 18 x looks pretty expensive
compared to Northrop 14
x. Now another competitors Raytheon
Raytheon is actually trading at
about 17x.
So out of those three
know could actually be a better buy.
So if that's something you're
interested in being if we're curious
to see more about that let me know
in the comments below I could do
some research on that trying to make
a video on NOC
But overall I'm actually a big fan
of Lockheed Martin stock.
I actually like where it's trading I
think it's trading at a fairly
reasonable price.
They seem to have a decent amount of
growth ahead of them and
any worries about the stock market.
I think that this is an opportunity
to get fairly defensive
and I think it could be a good
addition to most portfolios
from the defensive standpoint.
But what do you think.
Do you like Lockheed Martin stock
do you think that it's a good buy at
this current level or should perhaps
we should wait for a dip in the
stock market or
do we want to go ahead and research
NOC before we make any final
decisions on Lockheed Martin.
Let me know what you think in the
comments below.
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Thank you for so much for sticking
with me all the way to the end of
the video.
I'll see you in the next video.
Thanks.