Lockheed Martin’s (NYSE:LMT) stock has dipped in recent weeks, trading roughly 11% lower from its all-time and 52-week high of $508.10 in mid-April. Although this may seem like a minor setback, it is worth noting that the aerospace and defense behemoth has been performing remarkably well due to the ongoing conflict in Ukraine and the overall unstable geopolitical climate. Therefore, even a slight dip in the stock price could be viewed as a potential opportunity for investors to capitalize on.
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Considering Lockheed Martin’s current momentum, strong capital returns, reasonable valuation, and a solid order backlog ensuring future cash-flow visibility, I view the recent stock dip as a promising investment opportunity. Accordingly, I am bullish on the stock.
Industry Tailwinds Continue to Drive Revenues, Backlog
Lockheed Martin is currently benefiting from the ongoing tailwinds in its industry, which have been, in turn, contributing to the company generating robust revenues and maintaining an attractive backlog. By tailwinds, I mainly refer to the ongoing war in Ukraine. It’s hard to express how unfortunate and sad the ongoing conflict is. Yet, from Lockheed Martin’s point of view, the ongoing conflict represents a driver for growing orders for the company’s weapons, vehicles, and overall arsenal and equipment.
Specifically, included in the West’s support toward Ukraine, one can find Lockheed Martin’s Javelin anti-tank missiles, PAC-3 and THAAD interceptor missiles, counter-battery radars, and guided rocket systems.
Most importantly, Lockheed Martin produces the HIMARS. It’s one of the most critical pieces of military equipment in Ukraine’s arsenal, as the system’s guided missiles, which are able to fire up to a 270km range, have been helping Ukrainians cut the Russian supply chains and hit Russian command centers from afar with high precision.
Combined with an overall unstable geopolitical environment, including a potential crisis in Taiwan, you can see why Lockheed Martin is currently benefiting from significant industry tailwinds.
Exceptional Q1 Results
Operating within a favorable market environment, Lockheed Martin was once again able to deliver an exceptional first quarter. In Q1, the company maintained elevated revenues, which landed at $15.1 billion and implied a year-over-year increase of about 1%.
While the company experienced some minor seasonal headwinds in its Aeronautics, Rotary and Mission Systems, and Missiles & Fire Control segments, which led to lower sales volumes, the Space segment was able to compensate for these declines and produce more than enough sales to offset them.
In fact, the Space segment posted sales growth of 16% in Q1, which was powered by vigorous growth on the next-gen interceptor and classified programs. The segment further benefited from favorable program lifecycle timing on Orion, protective communications, and fleet ballistic missile programs.
Also, despite the ongoing inflationary pressure that is currently negatively impacting most companies within the industrial sector, Lockheed Martin’s strong sales and smart cost management resulted in the company maintaining rather stable earnings per share year-over-year, which came in at $6.61.
How is Lockheed Martin’s Backlog Looking?
Not only did Lockheed Martin’s Q1 results exceed expectations, but investors can also take comfort in knowing that the company’s exceptional performance is expected to continue into the coming quarters due to its substantial order backlog. At the end of Q1, the backlog amounted to an impressive $145.1 billion, providing a clear picture of the company’s cash flow.
Based on current revenue trends, I estimate that this backlog will translate into approximately one to one-and-a-half years worth of sales, providing significant assurance regarding future sales in the coming quarters.
Additionally, during the company’s earnings call, management mentioned that the backlog is expected to grow even further in Q2, fueled by upcoming orders for the F-35s. This suggests that Lockheed Martin’s cash-flow visibility is likely to extend even further.
Is LMT Stock a Buy, According to Analysts?
Turning to Wall Street, Lockheed Martin has a Hold consensus rating based on two Buys, nine Holds, and two Sell ratings assigned in the past three months. At $495.08, the average Lockheed Martin stock price target suggests 8.6% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell LMT stock, the most profitable analyst covering the stock (on a one-year timeframe) is Charles Minervino from Susquehanna, with an average return of 13.59% per rating and a 90% success rate. See below.
The Takeaway
Despite recent dips in Lockheed Martin’s stock price, the company remains well-positioned for success due to ongoing geopolitical conflicts and industry tailwinds. With a significant backlog providing a clear cash-flow projection for the future and anticipated orders expected to drive future sales and profitability, Lockheed Martin could be an attractive investment opportunity at its current valuation.
In particular, the company’s management has guided for FY-2023 earnings per share of between $26.60 to $26.90, which implies a P/E ratio of approximately 17 at the midpoint. This is a lower multiple than Lockheed Martin’s industry peers, such as Northrop Grumman (NYSE:NOC), Raytheon (NYSE:RTX), and Honeywell (NYSE:HON), who are currently enjoying similarly favorable tailwinds but have forward P/E ratios ranging from 18.5 to 20.5. Thus, Lockheed Martin’s valuation could have notable room for expansion.
