Does the Recent 6.8% Pullback Signal an Opportunity in Lockheed Martin Stock?

• Ever wondered if Lockheed Martin’s current share price is truly a bargain, or if markets are overlooking something? You are definitely not alone in searching for hidden value among the big defense names.
• The stock has slipped recently, losing 4.7% over the last week and 6.8% in the past month. This brings its year-to-date performance to -6.2%. That is a notable pullback compared to its 5-year return of 41.1%.
• Several headlines have shaped the latest price moves, including government contract updates and geopolitical factors influencing the entire aerospace and defense sector. Lockheed Martin’s visibility in ongoing defense projects keeps investor attention focused on both risk and growth potential as the headlines evolve.
• Zooming out, Lockheed Martin scores a 5 out of 6 on our valuation checks. This is a strong mark that hints at undervaluation. In a moment, we will walk through how that score is determined (using a few different methods), but stick around to discover a smarter way to put all these metrics into context by the end of the article.

Find out why Lockheed Martin's -10.8% return over the last year is lagging behind its peers.

Approach 1: Lockheed Martin Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting those projections back to today’s dollars. In Lockheed Martin’s case, this analysis starts with its current Free Cash Flow, which is $4.5 billion. Analyst forecasts suggest consistent growth in the coming years, with Free Cash Flow projected to reach $7.5 billion by 2029. After 2029, further cash flow projections are extrapolated by industry models rather than direct analyst estimates.

This particular valuation uses the 2 Stage Free Cash Flow to Equity method, which factors in both near-term analyst estimates and longer-term growth assumptions to arrive at an estimated fair value for the company. Based on these inputs, Lockheed Martin’s intrinsic value is calculated to be $630.37 per share.

With this DCF-derived fair value, the model implies Lockheed Martin stock is trading at a 28.2% discount compared to what the fundamentals suggest it should be worth. This indicates the shares are considerably undervalued at current prices, according to the cash flow outlook and discounting methodology.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lockheed Martin is undervalued by 28.2%. Track this in your watchlist or portfolio, or discover 929 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Lockheed Martin.

Approach 2: Lockheed Martin Price vs Earnings

The Price-to-Earnings (PE) ratio is widely regarded as a reliable valuation metric for companies that are profitable and generate steady earnings, such as Lockheed Martin. The PE ratio provides a snapshot of how much investors are currently willing to pay for each dollar of company earnings. This helps benchmark whether the stock is attractively priced or expensive compared to peers and the broader industry.

It is important to remember that the "right" PE ratio for a company is rarely a fixed number. Growth expectations and perceived risk play major roles. Higher growth companies or those with low risk typically command higher PE ratios, while slower or riskier companies tend to trade at lower multiples.

Lockheed Martin currently trades at a PE ratio of 24.9x. This is below both the Aerospace and Defense industry average of 38.1x and the peer average of 34.7x. Simply Wall St’s proprietary Fair Ratio for Lockheed Martin is calculated at 33.6x. The Fair Ratio is more informative than just comparing with peers or the industry because it customizes the expected multiple by factoring in the company’s growth outlook, profit margin, risk profile, size, and its position within the market and sector.

Comparing Lockheed Martin’s actual PE ratio of 24.9x with its Fair Ratio of 33.6x suggests the stock is trading at a meaningful discount and is undervalued based on this metric.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lockheed Martin Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply your story about a company, your own perspective on its future, combined with your estimates for things like revenue, earnings, and profit margins. Narratives connect the dots from your view of Lockheed Martin’s upcoming challenges and opportunities to a forecast of its financial results, and ultimately to what you believe is a fair value for the stock.

Narratives make investing more accessible by letting you test your assumptions and see how your fair value stacks up against the market price. On Simply Wall St’s Community page, you can easily create your own Narrative or browse those posted by millions of other investors. This helps you decide when to buy or sell by comparing the Fair Value from your Narrative to the current share price, allowing you to act with more confidence and clarity.

Because Narratives update automatically when news or earnings reports come in, your thesis stays relevant without the need for constant manual adjustments. For example, the most bullish investors on Lockheed Martin project a fair value as high as $544, based on robust future demand, while the most cautious see only $398, highlighting differing forecasts and risk appetites.

Do you think there's more to the story for Lockheed Martin? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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