Lockheed Martin (NYSE:LMT) is Entering a Value Investment Territory

Stjepan Kalinic
August 07, 2021
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For several weeks, Lockheed Martin CorporationNYSE:LMT) has been drifting downwards. Lackluster Q2 2021 earnings certainly didn’t help the cause, and full-year downward revision just made the story any better.

However, the company pays a reliable dividend of 2.87%, and with the price-to-earnings ratio (P/E) of 14.1, the top defense contractor is entering a value investment territory.

Q2 Earnings and Projections

  • EPS US$6.52 per share ($0.01 miss)
  • Full-year (FY) EPS revised to US$21.95 to 22.25, down from US$26.70 to 27.00
  • FY net sales guidance: US$67.3b to 68.7b
  • FY cash flow from operations at least US$8.9b

The negative revision came after the company announced to reduce pension burden by nearly US$5b.

Meanwhile, current CFO Kenneth Possenriede has retired, citing personal reasons. Current VP and treasurer John Mollard has been appointed acting CFO.

The ongoing acquisition of Aerojet Rocketdyne, worth US$4.4b, remains stuck in the regulatory mud. The ultimate decision by the Federal Trade Commission and the U.S. Department of Defense might be months away. If it happens, this acquisition could leave the U.S without an independent rocket supplier, right when Congress is trying to eliminate Russian engines in U.S rockets.

Recent times haven't been advantageous for Lockheed Martin as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lackluster earnings performance won't get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favor.

View our latest analysis for Lockheed Martin

NYSE:LMT Price Based on Past Earnings August 6th, 2021

If you'd like to see what analysts are forecasting in the future, you should check out our free report on Lockheed Martin.

Is There Any Growth For Lockheed Martin?

Lockheed Martin's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. Pleasingly, EPS has also lifted 199% in aggregate from three years ago, partly thanks to the previous 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 3.1% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader market.

This information shows why Lockheed Martin is trading at a P/E lower than the market. Many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

Dividend Remains Stable

Lockheed Martin keeps a very reasonable dividend payout at 40%. This means that even in a potential turmoil, the company will pay dividends to investors, as demonstrated in the last 10 years. Also, at 2.9%, the company is well above the industry average of 2.0%. To receive the dividend, buy the stock within the next 24 days, as the company goes Ex-Dividend on August 31, 2021.

NYSE:LMT, Dividend Growth and Payments, August 6th, 2021

The Final Word,

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Lockheed Martin maintains its low P/E on the weakness of its forecast growth is lower than the broader market, as expected. Shareholders accept the low P/E as they concede future earnings probably won't provide any pleasant surprises.

However, investors might be suffering from a short-term bias, as the recent negativity was due to somewhat isolated cases: performance issues on a classified program and pension liabilities.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Lockheed Martin you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. 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.

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

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