With a daily gain of 1.79%, a 3-month gain of 0.14%, and an Earnings Per Share (EPS) of 27.35, Lockheed Martin Corp (LMT, Financial) presents an intriguing case for value investors. In this article, we aim to answer the question: Is Lockheed Martin fairly valued? Read on for a comprehensive valuation analysis of this leading defense contractor.
A Snapshot of Lockheed Martin Corp (LMT, Financial)
As the world's largest defense contractor, Lockheed Martin has dominated the Western market for high-end fighter aircraft since winning the F-35 Joint Strike Fighter program in 2001. The company's largest segment, aeronautics, derives upwards of two thirds of its revenue from the F-35. Other segments include the Sikorsky helicopter business, missiles and missile defense systems, and space systems, which produces satellites and receives equity income from the United Launch Alliance joint venture.
With a current stock price of $454.69 per share and a market cap of $114.50 billion, the company's valuation appears to closely align with its GF Value of $449.55, suggesting that Lockheed Martin (LMT, Financial) is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to our calculations, Lockheed Martin (LMT, Financial) appears to be fairly valued. Our analysis suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Lockheed Martin has a cash-to-debt ratio of 0.21, which ranks worse than 70.17% of companies in the Aerospace & Defense industry. The overall financial strength of Lockheed Martin is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Lockheed Martin has been profitable 10 over the past 10 years. With an operating margin of 12.86%, which ranks better than 78.45% of companies in the Aerospace & Defense industry, Lockheed Martin's profitability is strong.
Growth is a critical factor in the valuation of a company. The 3-year average annual revenue growth rate of Lockheed Martin is 5.8%, which ranks better than 62.84% of companies in the Aerospace & Defense industry. However, its 3-year average EBITDA growth rate is 0.9%, which ranks worse than 50.22% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Lockheed Martin's ROIC is 16.26, and its cost of capital is 6.08.
Conclusion
In conclusion, Lockheed Martin (LMT, Financial) stock appears to be fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks in the middle of the Aerospace & Defense industry. To learn more about Lockheed Martin stock, you can check out its 30-Year Financials here.
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