Lockheed Martin (LMT) is an American aerospace, arms, defense, and information security firm with a global presence. I am bullish on the stock.
New China Sanctions
China said it would sanction Lockheed Martin after the firm sealed a $100 million missile defense maintenance contract with Taiwan. China considers Taiwan as part of its territory, although Taiwan is its own sovereign nation and an ally of the United States.
The sanctions will include restrictions on sales of military equipment to China and its private market. Lockheed Martin holds a significant interest in China’s private arms and aviation industries, and will likely have to re-evaluate its business strategy as a result of the sanctions.
Fortunately, Lockheed Martin only generates 9.7% of its revenue from the Asia Pacific, of which China only forms a part. Existing operating thus won’t see a major hit, which is probably why the stock price didn’t depreciate after the announcement.
Sanctions are always a risk that government-related entities face, and I don’t think this is a massive surprise to the market. Lockheed has a stronghold in its local market, meaning that revenue sustainability shouldn’t be a worry at all.
Furthermore, it needs to be considered that we’re discussing a company that has a 7.12% 10-Year CAGR in normalized net income, and a dividend payout ratio of 57.10%, suggesting that it provides investors with ample residual time and time again. Most of its investor base will thus not be focused on short-term events but are in it for the long haul.
Valuation and Technical Analysis
We’re looking at a significantly undervalued stock here, with Lockheed’s price-to-earnings ratio trading at a 19.44% discount to its 5-year average. In addition, LMT’s price to cash flow ratio is trading at a 29.14% discount to its normalized average, conveying strength in intrinsic value.
Lockheed is one of the few stocks showing strength in this bear market. It needs to be considered that much of its support could be due to the Ukraine conflict; nonetheless, it’s still trading above its 50-, 100-, and 200-day moving averages while remaining at an RSI of 69.85, suggesting a short-term equilibrium sentiment.
Wall Street’s Take
Turning to Wall Street, Lockheed Martin has a Moderate Buy consensus rating, based on five Buy and eight Hold ratings assigned in the past eleven months.
The average Lockheed Martin price target of $411.23 implies a mere .42% upside, although this may change as more analysts roll out their updated ratings after monetary policies find concrete direction.
Concluding Thoughts
Lockheed Martin is on firm grounds regardless of its stance with China. The stock provides solid prospects in a market that’s not in the best of climates, as it’s significantly undervalued and still trading above historical moving averages.
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