We've been asking ourselves recently if the market has placed a fair valuation on Lockheed Martin. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.
A Lower P/E Ratio Than Its Sector Average but Trades Above Its Graham Number:
Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Lockheed Martin has a trailing 12 month P/E ratio of 16.0 and a P/B ratio of 11.87.
Lockheed Martin's PEG ratio is 1.31, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Exceptional Profitability Overshadowed by Excessive Leverage:
| 2018-02-16 | 2019-02-08 | 2020-02-07 | 2021-01-28 | 2022-01-25 | 2023-01-26 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $49,960 | $53,762 | $59,812 | $65,398 | $67,044 | $65,984 |
| Gross Margins | 13.0% | 14.0% | 14.0% | 13.0% | 14.0% | 13.0% |
| Operating Margins | 13% | 14% | 14% | 13% | 14% | 13% |
| Net Margins | 4.0% | 9.0% | 10.0% | 10.0% | 9.0% | 9.0% |
| Net Income (MM) | $1,963 | $5,046 | $6,230 | $6,833 | $6,315 | $5,732 |
| Net Interest Expense (MM) | -$651 | -$668 | -$653 | -$591 | -$569 | -$623 |
| Depreciation & Amort. (MM) | -$1,195 | -$1,161 | -$1,189 | -$1,290 | -$1,364 | -$1,404 |
| Earnings Per Share | $6.75 | $17.59 | $21.95 | $24.3 | $23.02 | $21.48 |
| EPS Growth | n/a | 160.59% | 24.79% | 10.71% | -5.27% | -6.69% |
| Diluted Shares (MM) | 291 | 287 | 284 | 281 | 274 | 267 |
| Free Cash Flow (MM) | $7,653 | $4,416 | $8,795 | $9,949 | $10,743 | $9,472 |
| Capital Expenditures (MM) | -$1,177 | -$1,278 | -$1,484 | -$1,766 | -$1,522 | -$1,670 |
| Net Current Assets (MM) | -$29,891 | -$27,324 | -$27,262 | -$25,294 | -$20,099 | -$22,623 |
| Long Term Debt (MM) | $13,513 | $12,604 | $11,404 | $11,669 | $11,670 | $15,429 |
Lockheed Martin has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities. We also note that the company benefits from strong margins with a stable trend and exceptional EPS growth. However, the firm suffers from slimmer gross margins than its peers and high levels of debt.
