Lockheed Martin (NYSE: LMT ) recently reported its Q4 results, with revenue and earnings beating Street estimates. The company reported revenue of $18.9 billion, reflecting a 0.6% decline from the prior year but above the $18.0 billion Street estimate. Its adjusted earnings of $7.90 per share were up more than 1% yoy and above the consensus estimate of $7.26 per share. In this note, we discuss Lockheed Martin’s stock performance, key takeaways from its recent results and valuation.
LMT stock has shown strong gains of 20% from levels of $355 in early January 2021 to around $430 now, versus an increase of around 30% for the S&P 500 over this roughly 3-year period. However, the increase in LMT stock was far from consistent. Returns for the stock were 0% in 2021, 37% in 2022, and -7% in 2023. By comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating. that LMT underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over the past few years for individual stocks, heavyweights in the industrial sector, including CAT, UNP and GE, and even mega-cap stars GOOG, TSLA and MSFT . In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 every year during 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.
Given the current uncertain macroeconomic environment with high oil prices and high interest rates, LMT could face a similar situation as it did in 2021 and 2023 and underperforms the S&P over the next 12 months – or will it see a sharp jump? From a valuation perspective, LMT stock looks like it has some room for growth. We value Lockheed Martin’s valuation to be $490 per share, reflecting 13% upside from its current levels of $432. Our forecast is based on an 18x P/E multiple for LMT at the upper end of the company’s provided earnings per share outlook in 2024 of $25.65 up to $26.35. The 18x P/E multiple compares to the last three-year average of 17x for LMT.
Lockheed Martin’s revenue of $18.9 billion in Q4 was down 0.6% indeed. The company reported a 3% increase in Space Systems revenue, while all other segments saw lower sales. The company’s consolidated operating margin remained stable at 12.1%. Despite marginally lower revenues and stable margins, Lockheed Martin’s bottom line grew to $7.90 on a per-share and adjusted basis in Q4’23 versus $7.79 in the previous quarter due to a 5% decline in total shares outstanding amid share repurchases.
Despite a Q4 beat, LMT stock is down 6% since it reported its results due to lower guidance for 2024. The company expects revenues of $68.5 to $70.0 billion in 2024, slightly above Street estimates. However, its earnings forecast of $26.35 at the upper end of the range fell short of the $27.21 consensus estimate. In addition, the company is expected to face delays in first deliveries of its next-generation F-35 jets amid software problems. Overall, we believe investors are probably better off waiting for a dip to enter LMT for better gains in the long term.
While LMT stock looks like it has some room for growth, it’s useful to see how The associates of Lockheed Martin rate on metrics that matter. You’ll find other valuable comparisons for companies across industries at Peer Comparisons.
returns | Jan 2024 MTD (1) |
From the beginning from 2023 (1) |
2017-24 Total (2) |
LMT Return | -5% | -11% | 73% |
S&P 500 Return | 2% | 27% | 118% |
Hit Enhanced Value Portfolio | 0% | 38% | 609% |
(1) Returns effective 1/25/2024
(2) Cumulative total profit since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.