Is It Time to Reassess Lockheed Martin’s Valuation After Recent Defense Contract Wins?

• Many investors are asking whether Lockheed Martin is still attractive at around $465 a share, or if most of the potential upside has already been reflected in the price. This breakdown examines that question in detail.
• The stock has risen about 6% over the last week and 1.5% over the past month, but it is still down 3.5% year to date and roughly 6.1% over the last year. In that context, its 49.3% gain over five years may appear somewhat underappreciated.
• Recent headlines have highlighted continued defense contract wins and shifting geopolitical priorities, which tend to support elevated long term demand expectations for Lockheed Martin’s platforms. At the same time, investors are considering concerns about budget negotiations and the broader rate environment. This helps explain why the stock has lagged recently, even though its long term strategic backdrop appears solid.
• Under our framework, Lockheed Martin scores a 5/6 valuation check, which suggests it appears undervalued on most, but not all, of the metrics we track. Next, we will review the standard valuation approaches investors often use, before returning to a more nuanced perspective on whether the current price is reasonable.

Find out why Lockheed Martin's -6.1% return over the last year is lagging behind its peers.

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

A Discounted Cash Flow model estimates what a company is worth by projecting the cash it can generate in the future and discounting those cash flows back to today in dollar terms.

For Lockheed Martin, the latest twelve month free cash flow is about $4.5 billion. Under a 2 Stage Free Cash Flow to Equity approach, analysts and internal estimates project that annual free cash flow could rise toward roughly $9.2 billion by 2035, with nearer term forecasts, such as 2029, at about $7.5 billion. Analyst estimates typically cover only the next few years, so Simply Wall St extrapolates beyond that using more moderate growth assumptions.

When those future cash flows are discounted back to today, the DCF model suggests an intrinsic value of around $626.75 per share. Compared with the current share price near $465, this implies the stock is about 25.7% undervalued, indicating a material margin of safety if these cash flow projections prove broadly accurate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lockheed Martin is undervalued by 25.7%. Track this in your watchlist or portfolio, or discover 906 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

For consistently profitable companies like Lockheed Martin, the price to earnings, or PE, ratio is a practical way to gauge whether investors are paying a reasonable price for each dollar of current earnings. In general, faster growth and lower perceived risk justify a higher PE multiple, while slower growth or higher uncertainty warrant a lower one.

Lockheed Martin currently trades at about 25.6x earnings. That is below the broader Aerospace and Defense industry average of roughly 37.1x, and also under the peer group average of about 33.9x, suggesting the market is valuing Lockheed Martin’s earnings at a discount to many competitors.

Simply Wall St’s Fair Ratio framework goes a step further by estimating what PE multiple would be appropriate once factors such as expected earnings growth, profitability, industry positioning, company size, and key risks are all considered together. For Lockheed Martin, this Fair Ratio is around 34.4x, meaning the shares trade meaningfully below where they might sit based on those fundamentals. Because this method adjusts for growth and risk rather than relying purely on blunt peer and industry comparisons, it provides a more tailored view of valuation, and it currently points to the stock looking undervalued on a PE basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 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. Let us introduce you to Narratives, an easy tool on Simply Wall St’s Community page that lets you write the story behind your numbers. You can link your view of Lockheed Martin’s future revenue, earnings and margins to a financial forecast, and then to a fair value estimate that you can compare with today’s price. This can help you decide whether to buy, hold or sell, with the platform updating your Narrative dynamically as new news or earnings arrive. The tool also allows for very different perspectives. For example, one investor might see fair value closer to the most bullish target of about $545 because they believe rising export demand and margin recovery will persist. Another investor might anchor nearer the most cautious view around $398 because they think execution issues and budget risks will limit growth and justify a lower multiple.

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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