Updated: Jan 26
🚀 Lockheed Martin Corporation, security, and aerospace company engaged in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide.
It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. The Aeronautics segment offers combat and air mobility aircraft, unmanned air vehicles, and related technologies.
Market Cap: $92b
S&P rating: A-
Very good beginning news for long-term investors…📰
Lockheed Martin’s price dropped by 12% six weeks ago after their earnings call. The sales
come out a little lower than the investors expected and they are doing a 5-year reassessment so people getting nervous about their future.
This was the point where I invested in Lockheed Martin. Not much, only a little portion of my portfolio but still, this was the point where I thought, I will invest into a wide moat and strong dividend stock. I will look at the company as an outsider, so I will try to stay neutral and analytical.
This is what I like to see when I’m buying… 👀🌱
LMT has a very good Total annual and Total Rate of Return on my investment. I set a chart
for 20 years. You would have a very decent 13.1% total annual return in the past 20 years
with dividends together. There are some up’s and down’s as usual but steady growth over
the long term.
LMT beat the S&P 500 index on the growth side by 289%. Right now the price is where it’s should be and it can be a good opportunity to buy with a good margin of safety.
Operating revenue grew over the years, Net income – same results, now look at the debt.
Debt isn’t always a bad thing but LMT is on the line where it can be a little sticky. They have a Long term debt/Capital ratio of 55%. Not good, not bad. They reduced their debt over the past 5 years significantly and the debt is currently well covered by the operating earnings.
The 5-year average P/E ratio looks very good, it is only 17,5.
The current div. yield is 3.29% which is more than good in my opinion from a company that this big is almost incomparable in this sector. 26 consecutive years of dividend payments.
LMT beat the S&P 500 index both on the dividend and growth side(above). By the dividend side 494%. The payout ratio is a ratio where I like to see the percentage under 75%. In this way, the company can manage its dividends for a long period. LMT had this ratio always between 40-50% over the last decade. Share buybacks are a very good thing but when the company does the opposite way then it can be a silent killer for investors, if the company increases their shares then your proportion in the company will be reduced/diluted.
LMT is doing also a very good job here. They are buying back shares every year.
Without any calculations, I can say that LMT is undervalued but look at the numbers…📈
I use the most widely accepted method to calculate the fair value of a company which is the Discounted Cash Flow(DCF).
It is based on the premise that the fair value of a company is the total value of its future free cash flows discounted back to today's prices. I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.
Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $47.708 + $87.866 = $135.574
Equity Value per Share (USD) = Total value / Shares Outstanding = $135.574 /276= $491.6)
Undervalued by 30.8%. The current fair value is $491.6.
Risks and overall takeaway…⚖️
I’m trying to be independent but it’s hard. The way I see Lockheed Martin is that this is the
perfect time to buy this strong company. After their earnings call where the price dropped 12% is the perfect chance to buy-in.
This moment in the company’s lifecycle is just a momentary situation. Situations like this are what I am looking for as a long-term investor.
The company is growing, very stable dividend yield, only RTX can be a competitor but not in my opinion, they are almost alone in this sector with these safe numbers.
Hope this was useful for you! Please note that the above content is not an investment advise and shall be considered only for informative purpose.
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