Lockheed Martin (LMT), is a top industrial company and one of the top firms in the defense industry. It operates in four key segments: aeronautics, missiles and fire control (MFC), rotary and mission systems (RMS), and space.
The company manufactures some of the top products in the defense industry like the F-35 fighter jet, a plane that will cost taxpayers over $2 trillion over time. It also manufactures the F-22 Raptor, Patriot missile system, Apache fire control, and Sikorsky helicopter.
Like other companies in the military industry complex, Lockheed Martin has benefited from the recent geopolitical crises. The war in Ukraine is continuing, the Middle East is in a crisis, the Korean Peninsula is on edge, and tensions between the US and China have escalated.
Donald Trump, who polls show is leading, has insisted that NATO members must increase their defense spending. All these moves will benefit companies like Lockheed Martin, General Dynamics, and RTX.
Lockheed Martin’s stock has surged to a record high of $515 while its hype has risen by 153%.
Positive hype
Donald Trump has pledged to boost defense spending and pressure NATO members to do the same. There are signs that most of these countries are working to increase their spending, with the UK expected to spend 3% of its budget on defense.
Lockheed Martin published strong financial results as its net sales rose by 9% to $18.1 billion in the second quarter.
It also boosted its payouts to shareholders through dividends and share buybacks. It has raised its dividend for 21 years, making it a potential future dividend aristocrat. Its dividend yield stands at 2.5%.
The company expects that its business will continue firing on all cylinders this year as its revenue will be between $70.5 billion and $71.5 billion. In April, its guidance was revenue of between $68.5 billion and $70 billion.
Lockheed also boosted its profitability guidance, with the profit per share expected to be between $26.10 and $26.60.
Lockheed has also raised its margins, with the EBITDA margin rising to 14.58% and the net income margin rising to 9.73%.
The company has also received several rating upgrades from Wall Street analysts after its strong results.
In a note on Wednesday, analysts at Cowen upgraded the stock from a hold to a buy citing the strength of its air business. Analysts at Deutsche Bank, RBC, Wells Fargo, and UBS maintained their bullish ratings.
Meanwhile, Lockheed Martin is continuing to solve the supply chain issues that have hindered its business in the past.
Negative hype
The top negative hype is that the Lockheed Martin stock has now gotten highly overbought as the Relative Strength Index (RSI) has moved to 76. While that is a sign that the company has momentum, it also means that it could pull back.
The other negative hype is that the company is becoming a bit overvalued. It has a forward P/E ratio of 19, higher than the five-year average of 16, and a forward EV-to-EBITDA multiple of 19.
Summary on Lockheed Martin
Lockheed Martin is one of the biggest defense companies in the world. It has built some of the most iconic products like the Patriot missiles that are in short supply. It is a near monopoly in some areas and has, over time, learned to co-exist with other companies in the sector like RTX and General Dynamics.
The company is set to benefit as geopolitical tensions rise and countries see the need to boost their defense products. At the same time, it is working to lower its costs by slashing about 1% of its workers.
Its annual revenue has risen steadily from $59.8 billion in 2019 to over $67 billion in 2023 and the management sees the figure rising to $70 billion this year and analysts expect it to rise to $73 billion in 2023.
It has a strong balance sheet with over $2.5 billion in cash and short-term investments and a dividend payout ratio of 44%. Therefore, the stock will likely retest the support at $490, the neckline of the inverse head and shoulders pattern and then resume the bullish trend.
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