Lockheed Martin Corporation

Date: May 23, 2024.

Company’s Overview

Lockheed Martin Corporation (LMT) is a global aerospace, defence, and security company. They develop, manufacture, and integrate sophisticated technology systems and products for military and civilian applications worldwide. Their offerings include fighter jets, missiles, satellites, and other defence systems.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

The Company’s Comparison of total net revenues by segment from 2019 till 2023:

Related Risks

Lockheed Martin Corporation navigates a complex risk landscape. Fluctuations in geopolitical tensions and potential conflicts can significantly impact their sales, as defence spending decisions are directly tied to global security threats. They face fierce competition from other major players in the aerospace and defence industry, requiring them to constantly innovate and offer cost-effective solutions. The rapid pace of technological advancements poses another challenge, as it can quickly render their current products obsolete, necessitating significant investments in research and development to stay ahead of the curve. Additionally, stricter regulations on defence exports or drone usage could limit their market reach or profitability. Finally, disruptions in the global supply chain could lead to material shortages or delays in product manufacturing, impacting project timelines and potentially increasing costs.

Financial Performance

Company’s Revenues

Revenues from 2021 to 2023:

• Lockheed Martin annual revenue for 2023 was $67.571B, a 2.41% increase from 2022.
• Lockheed Martin annual revenue for 2022 was $65.984B, a 1.58% decline from 2021.
• Lockheed Martin annual revenue for 2021 was $67.044B, a 2.52% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Lockheed Martin annual net income for 2023 was $6.92B, a 20.73% increase from 2022.
• Lockheed Martin annual net income for 2022 was $5.732B, a 9.23% decline from 2021.
• Lockheed Martin annual net income for 2021 was $6.315B, a 7.58% decline from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Lockheed Martin 2023 annual EPS was $27.55, a 27.19% increase from 2022.
• Lockheed Martin 2022 annual EPS was $21.66, a 4.83% decline from 2021.
• Lockheed Martin 2021 annual EPS was $22.76, a 6.34% decline from 2020.

**The 2024 and 2025 values are the expected by the analysts

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Lockheed Martin annual free cash flow for 2023 was $6.229B, a 1.58% increase from 2022.
• Lockheed Martin annual free cash flow for 2022 was $6.132B, a 20.35% decline from 2021.
• Lockheed Martin annual free cash flow for 2021 was $7.699B, a 19.98% increase from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

On October 6, 2023, LMT’s Board of Directors authorised an increase to the existing program by $6.0 billion.

The Company overall has decreased its shares outstanding by almost 39% from 2009.

Financial Strength

Their asset-to-liability ratio of 1.14 falls far short of the ideal 2:1 ratio. This indicates they barely have enough assets to cover their current debts, raising serious questions about their ability to meet their financial obligations in the near future. This weak financial leverage could limit their ability to invest in future growth initiatives or make strategic acquisitions.

The situation becomes even more alarming when we look at their current ratio of 1.3. This ratio sits well below 1, implying they might struggle to handle short-term liabilities (like accounts payable) using only their current short-term assets (like cash and inventory). This weak liquidity could lead to difficulties managing day-to-day operations without additional funding.

Adding to the financial strain, Lockheed Martin carries a significant amount of debt. Their net debt of $17.1 billion is a substantial burden on the company. This high level of debt could severely limit their financial flexibility for future investments or hinder their ability to weather economic downturns. The fact that their net debt has also increased by 54% since 2019 further intensifies this concern.

Valuation

Based on the analysis performed, LMT’s price is overvalued. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 5 buy, 1 overweight, 18 hold, 0 underweight and 1 sell ratings. The consensus rating leans toward hold.

Ferguson plc presents a mixed bag for investors. While they boast impressive profitability (gross margin: 30.35% vs industry: 23.42%, net margin: 6.35% vs industry: 4.13%) and consistent growth in revenue, net income, and free cash flow over the past decade (CAGR of 3.36%, 8.6%, and 16.3% respectively), their financial strength raises concerns. Their asset/liability and current ratios (1.53 and 1.8) are somewhat mediocre, indicating limited buffer for debt and potential challenges managing day-to-day operations without additional funding.

However, the most concerning aspect is their ballooning net debt of $4.6 billion, which has grown a staggering 286% since 2019. This aggressive debt accumulation could hinder their financial flexibility and growth potential. Additionally, the stock appears overvalued based on the analysis (P/E ratio: 22.64 vs industry median: 13.26).

Overall, Ferguson plc seems like a company with solid profitability but concerning financial health. The high debt burden and potential for increased competition make them a somewhat risky investment, despite their recent revenue growth and efficiency. Investors seeking financially stable companies with lower risk profiles might be better suited to look elsewhere.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.