VALUATION HIGHLIGHTS

1. Aeronautics (U.S. Aeronautics, Non-U.S. Aeronautics) constitute 37% of the Trefis price estimate for Lockheed Martin's stock.
2. Mission Systems & Training (US Mission Systems & Training, Non-US Mission Systems & Training) constitutes 29% of the Trefis price estimate for Lockheed Martin's stock.
3. Space Systems (U.S. Space Systems, Non-U.S. Space Systems) constitute 18% of the Trefis price estimate for Lockheed Martin's stock.

WHAT HAS CHANGED?

LMT Stock vs. S&P 500 Performance

The changes in LMT stock over the recent years have been far from consistent. Returns for the stock were 3% in 2021, 40% in 2022, -4% in 2023, and 10% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that LMT underperformed the S&P in 2021, 2023 and 2024.

LMT Q4 2024 Performance

Lockheed Martin's Revenue declined 1.3% y-o-y to $18.6 billion in Q4 (versus $18.9 billion in the prior-year quarter). Looking at segments, the Missiles and Fire Control segment saw an 8% sales growth, Aeronautics sales were up 5%, but Rotary & Mission Systems sales declined 10%, and the Space segment saw a 13% revenue decline.

The company's EPS of $2.22 was down from the $7.58 figure seen in the prior-year quarter. The company expects the 2024 revenue to be $74.25 billion and adjusted earnings to be around $27.15 per share.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are the key drivers of Lockheed Martin's value that present opportunities for upside or downside to the Trefis price estimate:

Aeronautics

• U.S. Aeronautics EBITDA Margin: EBITDA margin for the Aeronautics division stood at 10.6% in 2024, compared to 11.2% in 2019. This change reflects the life cycles of the division's various programs, including the F-35 program. Looking forward, we expect margins to rise slightly to 12% by the end of our forecast period, led by the expected ramp-up in F-35 production.
  However, if margins were to fall to under 8% due to tighter price negotiations from the Pentagon, there could be a downside of over 10% to Trefis price estimate for Lockheed Martin's stock.

U.S. Mission Systems and Training

• Mission Systems and Training Revenues: The segment revenues have grown from $10.8 billion in 2019 to $11.5 billion in 2024, driven by increased orders and a pre-existent backlog. It has since seen a gradual rise, and we forecast it to be north of $13 billion by the end of our review period.
  However, if revenues rise at a higher pace to about $20 billion over the Trefis forecast period, there could be an upside of about 10% to Trefis price estimate for Lockheed Martin's stock.

BUSINESS SUMMARY

Lockheed Martin Overview

Lockheed Martin is a global security and aerospace company focused on the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. The company also provides a wide array of management, engineering, technical, scientific, logistics, system integration, and cybersecurity solutions.

SOURCES OF VALUE

Sources of Value

1. Leading Missile Defense Systems
   • With the escalating global threat of missile attacks, demand for sophisticated missile defense systems is strong from governments worldwide, including the U.S.
   • Lockheed Martin possesses a portfolio of highly capable and efficient missile defense systems, including Aegis, Patriot Advanced Capability-3 (PAC-3), and Terminal High Altitude Area Defense (THAAD). Continued global instability and defense modernization efforts are expected to drive significant contracts and revenues for these systems in the coming years.

2. Key Contractor for the F-35 Program
   • The F-35 Lightning II is a multirole combat aircraft developed by Lockheed Martin and remains a critical program for the company. As part of the Joint Strike Fighter (JSF) program, it is intended to replace a broad spectrum of existing combat aircraft for the U.S., the U.K., Canada, and numerous other international partners.
   • Looking ahead, the F-35 program is projected to continue driving a substantial portion of Lockheed Martin's revenue as production continues and international deliveries increase. The ongoing development and integration of new capabilities for the F-35 will also be a key value driver.

KEY TRENDS

Key Trends

1. Continued Reliance on the U.S. Government
   • Lockheed Martin derives a significant portion of its revenue from the U.S. government through agencies such as the Department of Defense, Homeland Security, and NASA. While the exact percentage may fluctuate annually, reliance on U.S. government spending remains a key factor for the company. Changes in government budget priorities and potential spending cuts can impact Lockheed Martin's contract volume. However, current geopolitical tensions and the focus on national security may mitigate significant reductions in the near term.

2. Growing Importance of Cybersecurity
   • The increasing sophistication and frequency of cyberattacks continue to pose significant IT security challenges for the U.S. government, including threats from foreign nations, terrorist organizations, and malware intrusions. This trend is expected to sustain and likely increase the demand for robust cybersecurity solutions to protect critical infrastructure and sensitive data. Lockheed Martin is a prominent provider of cybersecurity services and stands to benefit from this ongoing need.