Should You Pick Lockheed Martin Stock After A Q3 Beat?

Lockheed Martin (NYSE: LMT) recently reported its Q3 2024 results, with revenues and earnings slightly ahead of our estimates. The company reported revenue of $17.1 billion and adjusted earnings of $6.84 per share, compared to our estimates of $17.0 billion and $6.50, respectively. In this note, we discuss Lockheed Martin’s key takeaways from its recent results, valuation, and its stock performance.

How Did Lockheed Martin Fare In Q3?

Lockheed Martin’s revenues of $17.1 billion reflected a 1% y-o-y rise. Looking at segments, Aeronautics sales declined 3% due to lower F-35 volume on production contracts.  Missiles and Fire Control segment sales increased 8% due to higher production for its Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) programs. Rotary and Mission Systems sales were up 6% led by higher demand for its integrated warfare system and sensors.  Lower volume for the Orion program resulted in a 1% fall in the Space segment revenue.

Lockheed Martin reported a 40 bps rise in operating margin to 12.5% in Q3. This clubbed with a 4.6% fall in total shares outstanding resulted in the bottom line of $6.84, reflecting a 1% y-o-y rise. The company also raised its full-year outlook. It now expects its sales to be $71.25 billion and earnings to be $26.65 per share, versus its prior guidance of $71.0 billion and $26.35 (at mid-point of the range), respectively.

What Does This Mean For LMT Stock?

Although Lockheed Martin’s Q3 performance was better than our estimates, its top-line of $17.1 billion missed the consensus estimate of $17.4 billion. This resulted in a 6% fall in its stock after it reported the results. However, with solid earnings beat and a full-year outlook better than street estimates, the fall in LMT stock purely on the results front seems unwarranted. That said, LMT stock was a little overvalued heading into the results, with its stock trading at a lifetime high of over $615.

We estimate Lockheed Martin’s Valuation to be $572 per share, aligning with its current market price. Our forecast is based on a 21x P/E multiple for LMT and expected earnings of $26.65 on a per share and adjusted basis for the full year 2024. We have raised both the metrics – valuation multiple and earnings estimate – based on the recent results. The 21x figure is also higher than the stock’s average P/E multiple of 17x over the last five years. A slight rise in valuation multiple for Lockheed Martin seems justified in the current environment of geopolitical tensions.

LMT stock has risen 29% this year, compared to 23% gains for the broader markets. Even if we look at a slightly longer period, the increase in LMT stock over the last three-year period has been far from consistent and has largely been as volatile as the S&P 500. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

While LMT stock looks appropriately priced, it is helpful to see how Lockheed Martin’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 10/23/2024
[2] Cumulative total returns since the end of 2016

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