Skip to Content
Stock Analyst Update

Lockheed Martin Reports Steady Growth

We increased our fair value estimate for the wide-moat company.

Mentioned:

Wide-moat-rated Lockheed Martin (LMT) reported a strong first quarter, as sales rose 3.9%, slightly below FactSet consensus estimates, and diluted earnings increased 7.9% to $6.56 per share, above FactSet consensus estimates. After adjusting our forecasts with the updated information, we’re increasing our fair value estimate to $436 per share from $433 due to the time value of money and somewhat lower capital expenditure expectations, though these factors are partially offset by slightly lower margins.

Lockheed increased sales in all segments, but sales in the aeronautics segment were relatively flat. The company delivered five fewer F-35s, which make up about 70% of segment revenue, because of the ongoing effects of COVID-19 on manufacturing and because this quarter had one less week than the first quarter of 2020. We think that flat sales on declining deliveries is tangible evidence of the firm’s growing F-35 sustainment revenue, which is a major driver of our growth forecast. We think the segment has room to grow its top line under the assumptions that F-35 production returns to peak levels and that sustainment revenue incrementally adds to growth.

Segment margins, which exclude the effects of government reimbursement of pension expenses, decreased 25 basis points due to margin compression in the firm’s space segment. The margin compression was a function of not having the equity earnings from a launch event in the United Launch Alliance joint venture and lower risk retirements, which are step increases in percentage of completion contracts. Management gave some longer-term guidance on margins, broadly suggesting that large segments of the firm’s portfolio are shifting more toward the development of new products than reaping cash from efficiencies in existing programs. We’ve slightly decreased our margins on this guidance, but we are maintaining our 11% midcycle segment margin, as we believe these development programs will not perpetually deteriorate margins.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Burkett Huey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.