We believe Lockheed Martin shares (NYSE: LMT ) is currently a better pick than its sector peer, Textron stock (NYSE: TXT), given its better prospects. LMT trades at a higher valuation multiple of 1.6x income vs. 1.2x for Textron, primarily due to its superior revenue growth and profitability. There’s more to the comparison, and in the sections below, we discuss why we believe Lockheed Martin will offer better returns than Textron over the next three years. We compare a host of factors, such as historical earnings growth, stock returns and valuation, in an interactive panel analysis of Textron vs. Lockheed Martin: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
TXT stock has seen extremely strong gains of 60% from levels of $50 in early January 2021 to around $80 now, versus an increase of around 20% for the S&P 500 over this roughly 3-year period. Similarly, LMT stock has also shown strong gains of 25% from levels of $355 in early January 2021 to around $445 now, versus an increase of around 20% for the S&P 500 over this roughly 3-year period.
However, the rise of TXT and LMT shares was far from consistent. Return for TXT stock was 60% in 2021, -8% in 2022, and 10% in 2023 (YTD), while LMT stock saw a return of 0% in 2021, 37% in 2022, and -9% in 2023 (YTD ). By comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that TXT underperformed the S&P in 2023 while LMT underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – it’s been tough over the past few years for individual stocks; for heavyweights in the Industrial sector, including UNP, BA and GE, and even for the 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, could TXT and LMT face a similar situation as they did in 2023 and underperforms the S&P over the next 12 months – or will they see a sharp jump? We believe LMT will fare better between the two.
1. Lockheed Martin’s Revenue Growth Is Better
- Lockheed Martin’s income growth has been better, with a 3.4% average annual growth rate in the last three years, while Income from Textron decreased at an average rate of 1.4% during this period.
- The decline in revenue for Textron can primarily be attributed to the impact of the COVID-19 pandemic on the company’s businesses, particularly aviation and industrial. A reduction in aircraft utilization affected its aviation aftermarket business, too. Weak travel demand and supply chain issues led to order cancellations in 2020.
- While aviation demand has increased over the past year, Textron’s Bell helicopter revenues have declined due to lower military demand. Although Textron saw higher military volume in Q3’23, it was offset by lower commercial volume.
- Lockheed Martin’s revenue growth in recent years has been led by higher production volume for its Sikorsky helicopter programs, AC-3, Long Range Anti-Ship Missile (LRASM), and the Joint Air-to-Surface Standoff Missile (JASSM) program. , among others.
- The company is benefiting from increased military systems and sensor sales.
- It also sees a higher volume of production contracts for the F-35 and the national security space program driving its sales growth, a trend expected to continue in the near term.
- Looking forward, Lockheed Martin’s revenue is expected to continue to grow faster than Textron’s over the next three years.
2. Lockheed Martin Is More Profitable
- Textron’s operating margin increased slightly from 6.9% in 2019 to 7.9% in 2022, while Lockheed Martin’s operating margin slipped from 13.3% to 11.2% during this period.
- Looking at the last twelve-month period, Lockheed Martin’s operating margin of approx 13% prices better than 7% for Textron.
- Ours Comparison of Textron’s Operating Income and Lockheed Martin Operating Income Comparison panels have more details.
- Looking at financial risk, both stocks are comparable. While Textron’s 21% debt as a percentage of equity is higher than 14% for Lockheed Martin, the latter 5% cash as a percentage of assets is lower than 10% for TXT. This means that Lockheed Martin has a better debt position, but Textron has more of a cash cushion.
3. The Web of Everything
- We see that Lockheed Martin has seen better revenue growth, is more profitable and has a better debt position. On the other hand, Textron has more of a cash cushion and trades at a slightly lower valuation multiple.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe that LMT is the better choice of the two.
- Looking at valuation multiples, LMT is doing better. Textron currently trades at 1.2x trailing earnings, versus the last five-year average of 0.9x. In contrast, Lockheed Martin currently trades at 1.6x earnings, aligning with its last five-year average.
- Although we expect this gap in valuation multiple to narrow in Textron’s favor over time, Lockheed Martin is likely to outperform Textron due to its superior (expected) revenue growth.
- Ours Textron (TXT) valuation comparison. and Lockheed Martin (LMT) valuation comparison. have more details.
- The table below summarizes our revenue and return expectations for Textron and Lockheed Martin over the next three years and shows an expected return of -7% for TXT during this period against a 17% expected return for LMT, based on Trefis Machine Learning analysis – Textron vs. Lockheed Martin – which also provides more details on how we arrive at these numbers.
While LMT stock may outperform TXT, it’s useful to see how The companions of Textron rate on metrics that matter. You’ll find other valuable comparisons for companies across industries at Peer Comparisons.
In addition, the Covid-19 crisis has created many price discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counterintuitive stock valuation is Textron vs. Whirlpool.
returns | Nov 2023 MTD (1) |
2023 YTD (1) |
2017-23 Total (2) |
TXT Return | 3% | 10% | 61% |
LMT Return | -2% | -9% | 78% |
S&P 500 Return | 8% | 18% | 103% |
Hit Enhanced Value Portfolio | 8% | 27% | 551% |
(1) Month and year-to-date from 11/20/2023
(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.