Lockheed Martin Delivered Robust Earnings Even During Crisis

After dropping 36% in March, Lockheed Martin’s stock (NYSE: LMT) has gained 40% and currently trades around $385 per share. Despite the impact of the coronavirus pandemic on the company’s supply chain, the second quarter revenues increased by 12% to $16.2 billion coupled with a 14% growth in earnings. Along with robust earnings, the company received $22 billion of new orders and its order backlog surged by $7 billion. Trefis estimates Lockheed Martin’s valuation at $397 per share as analyzed in an interactive dashboard analysis including the historical trends in revenues, margins, and P/E multiple.

Aeronautics and Missiles & Fire Control were key drivers of revenue growth

The company’s Aeronautics division is engaged in the research, design, development, manufacture, integration, sustainment, support, and upgrade of advanced military aircraft and associated technologies. The company’s F-35 program is the primary driver of the Aeronautics division and contributes nearly 27% of the total revenues. While the pandemic caused a sequential deceleration in production rate, the company delivered 22 F-35s, 5 C-130Js, and 18 helicopters during the second quarter. Also, the $22 billion of new orders were primarily driven by the $7 billion order bookings for F-35s.

The company’s Missiles and Fire Control division also observed a double-digit growth, assisted by higher deliveries of PAC-3 missiles (Patriot Advanced Capability-3) and THAAD systems (Terminal High Altitude Area Defense). Moreover, the segment’s order book got a $6 billion boost from the Defense Department requirement of additional PAC-3 MSE interceptors, and associated equipment for the U.S. military and other foreign customers.

Stable margins assisted comparable earnings expansion

The second quarter net income swelled by 14% to $1.6 billion, driven by strong revenue growth and stable margins. On a per-share basis, the growth was comparable as the company repurchased just 0.7 million shares for $259 million. However, the company paid $671 million in dividends at $2.40 per share. Consistent with the U.S. government’s inventory objective 2,456 F-35s and Lockheed Martin’s growing production capacity, we estimate the company’s stock valuation a $397 per share, using a forward P/E multiple of 16.4 and earnings of $24.21 per share for 2020.

As defense stocks observe an earnings boost from a strong order backlog, we highlight the performance of debt-laden and down-but-not-out companies in another dashboard. Can these stocks yield large upside post-Covid?

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