Lockheed Martin (LMT) Margin Decline Challenges Bullish Narratives Despite Strong Valuation and Earnings Quality

Lockheed Martin (LMT) posted a net profit margin of 5.7%, down from 9.4% last year, with average annual earnings slipping 4.6% over the past five years. While the recent trend shows slower growth, forecasts call for annual profit growth of 14.3% and revenue growth of 3.2% per year, both lagging the broader US market. Despite this, the company’s earnings quality remains high, and the stock stands out for its attractive valuation, solid dividend, and continued growth expectations, helping to keep investor sentiment steady.

See our full analysis for Lockheed Martin.

Now, let's see how the latest results measure up against the most widely held narratives for Lockheed Martin. Where do the numbers back up the market story, and where do they challenge it?

See what the community is saying about Lockheed Martin

Profit Margin Slide Reflects Legacy Program Strain

• Lockheed Martin’s net profit margin dropped to 5.7%, a clear contraction from 9.4% a year ago, largely due to persistent cost overruns and integration challenges in major legacy programs.
• Analysts' consensus view points to how margin pressures are set against a backdrop of ongoing operational improvements and enhanced risk controls.
  • Contract discipline and digital transformation initiatives are expected to support margin recovery, but legacy program charges, such as the $1.8 billion hit expected in Q2 2025, threaten near-term profitability.
  • This struggle aligns with consensus concerns that further profit compression could occur if technical hurdles and budget risks persist across Lockheed’s core classified and helicopter programs.
• Analysts see Lockheed’s push for efficiency as potentially turning the tide, but only if cost discipline sticks.
  • Rising U.S. munitions spending and multi-year contracts could stabilize margins, but overexposure to large legacy projects still creates headwinds in the short term.
  • Revenue growth visibility remains robust, yet improving profits depends critically on avoiding further cost overruns, especially in fixed-price contracts.

Valuation Advantage Versus Peers Holds Up

• The stock trades at a lower price-to-earnings ratio than its industry and peer average, while also sitting significantly below DCF fair value ($487.14 per share compared to a DCF fair value of $575.19), indicating analysts see Lockheed Martin as attractively priced given expected earnings growth.
• Analysts' consensus narrative argues that Lockheed Martin’s fair pricing rests on forecasts for rising profit margins, from 5.9% today to 8.7% in three years, and revenue expected to reach $81 billion by 2028.
  • The consensus price target of $520.41 sits just above the current share price, suggesting the market mostly agrees with these optimistic forecasts, but there is debate: some analysts project much higher or lower targets depending on how cost and contract risks play out.
  • Consensus weighs Lockheed’s attractive PE discount and fair pricing against a backdrop of budget uncertainty and heightened competition, leaving the door open for re-rating if margins do improve.
• On valuation metrics, Lockheed’s PE ratio is not only below the US Aerospace & Defense average (currently 34.4x) but also expected to compress further to 18.9x by 2028 if projections materialize.
  • A relatively small 4.1% upside to the consensus price target implies much of the good news may already be priced in unless earnings or margins outpace current analyst expectations.
  • The gap between today’s price and DCF fair value offers a cushion, especially if Lockheed can deliver on backlog and technology-driven margin expansion.

Backlog and R&D Investment Underpin Long-Term Case

• Analyst consensus highlights robust demand for advanced platforms like the F-35, PAC-3, and hypersonic weapons, fueling sustained backlog and providing strong visibility for revenue and cash flow stability across multiple years.
• Analysts' consensus narrative notes that long-term revenue and earnings durability rely on continued investment in next-generation technologies, such as hypersonics and missile defense.
  • Strong public-private R&D partnerships and a diversified product pipeline support the view that Lockheed can expand into higher-margin, future-ready markets.
  • However, pressure from intensifying competition and shifting defense budgets underscore the need for consistent innovation to avoid revenue stagnation or share losses.

See how forward-looking estimates and risk factors are balanced in the full consensus view for Lockheed Martin. 📊 Read the full Lockheed Martin Consensus Narrative.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Lockheed Martin on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Think the numbers tell a different story? Share your perspective and build a unique narrative in just a few minutes: Do it your way

A great starting point for your Lockheed Martin research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

See What Else Is Out There

Lockheed Martin’s weak profit margins and recurring cost overruns highlight the challenges of maintaining steady growth and reliable earnings in a competitive landscape.

If you want alternatives with more consistent performance, check out stable growth stocks screener (2094 results) and discover companies delivering stable results without surprise setbacks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com