Is Lockheed Stock A Buy After Largest Takeover Since 2015
GILLIAN RICH
12/25/2020
Lockheed Martin stock is forming a base as the defense giant acquires a top developer of space and missile technology. Is LMT stock a good buy right now? Take a look at Lockheed Martin (LMT) earnings and the stock chart.
The $4.4 billion deal for Aerojet Rocketdyne (AJRD) is Lockheed's largest since it acquired helicopter maker Sikorsky in 2015 for $9 billion.
LMT Stock Fundamental Analysis
Lockheed reported strong third-quarter results in October. Lockheed earnings from continuing operations rose 8.7% to $6.25 per share, beating analyst estimates by 18 cents. Revenue rose 10.2% to $16.4 billion, beating estimates for $16.34 billion.
Lockheed now sees full-year EPS of $24.45, up from a prior view of $23.75-$24.25, on revenue of $65.25 billion, up from a prior view of $63.5 billion- $65 billion. Currently, analysts see full-year EPS of $24.13 on revenue of $64.76 billion.
Management also expects 2021 revenue to meet or exceed $67 billion, below consensus views for $68.1 billion. Lockheed sees growth slowing down for key business units, predicting low-single-digit growth in aeronautics and missiles, down from Q3's pace.
Meanwhile, cash from operations is seen at $8.1 billion in 2021, after pension contributions.
Lockheed added that its 2020 and 2021 forecasts assume no significant work stoppages and supply chain disruptions from Covid-19 as well as the ability to recover costs from the federal government and that funding priorities don't change.
Much of its revenue growth has come from sales of the F-35 fighter. The stealthy fighter jet is the most expensive weapons program in Pentagon history, with a procurement price tag of about $400 billion, and is Lockheed's biggest revenue generator.
(Lockheed Martin)
However, other segments are expanding faster. For example, Mideast tensions and the Pentagon's focus on countering Russia and China have boosted demand for missiles. The defense contractor plans to increase Hellfire missile production to 11,000 per year from 7,000. It also wants PAC-3 missile production to double to meet customer demand.
Lockheed had said missiles and fire control unit to be its fastest-growing business for the next four years. But during the Q3 call, management said it now sees its space division is its fastest-growing business area, with 2021 growth seen in the mid-single-digit range.
Lockheed still sees strong demand for its Hellfire missiles but that it would be flattish year over year.
Lockheed earnings per share growth has averaged 24% over the past three years, according to IBD Stock Checkup. On the revenue side, growth averaged 10% over the last three years.
Analysts see Q4 earnings growth accelerating to 21% with revenue up 7%. For 2020, Wall Street sees EPS up 11.5% and revenue up 9%. Next year, EPS is seen up 7% with revenue up 3.7%.
Technical Analysis For LMT Stock
LMT stock has CAN SLIM fundamental metrics that include a 52 out of a best-possible 99 IBD Composite Rating and an EPS Rating of 94 out of 99. Lockheed is ranked 21st in IBD's Aerospace/Defense group.
After selling off early this year, Lockheed stock is now forming a flat base with a 402.48 entry point, according to MarketSmith analysis. The stock tumbled below its 50-day and 200-day lines as the Covid-19 pandemic rattled the overall market. After finding resistance at those key levels in November, LMT stock has been falling away from them headed into the end of the year.
The relative strength line, another key indicator, is at a five-year low, meaning Lockheed stock has been badly underperforming the broader market.
The Accumulation/Distribution rating is now at D-, indicating that there is net selling of the stock on the part of institutional investors.
Still, the number of funds holding shares has inched up, climbing to 2,053 at the end of Q3, up from 2,042 in Q2 and 2,032 in Q1.
Lockheed Martin Stock News
The F-35 stealth fighter is seen as the "quarterback" in the Pentagon's emerging warfighting strategy to counter near-peer rivals like Russia and China. But its near-term prospects have turned a bit clouded.
In 2019, Lockheed said F-35 sales could follow the older F-16's trajectory of 4,600 jets, representing a jump of more than 40% over current estimates. The F-35 wasn't cleared for full-rate production by late 2019 as expected. But Pentagon acquisition chief Ellen Lord said in August that the DOD is sticking with an earlier March 2021 estimate.
Due to supply chain disruptions and workplace social distancing protocols during the coronavirus pandemic, Lockheed said in May that it would cut production by 18 to 24 F-35s over the next three months. It plans to deliver 140 F-35s in 2020 and 170 in 2021 and 2022.
In September, Lockheed said F-35 deliveries postponed by the pandemic won't fully recover until the end of 2021. While the company's Fort Worth, Texas, plant is back at full speed, its supply chain is taking longer to recover, Lockheed told Aerospace Daily.
Adding to supply issues, Turkey was kicked out of the F-35 program in 2019 over the delivery of a Russian air defense system.
However, other segments are expanding faster. For example, Mideast tensions and the Pentagon's focus on countering Russia and China have boosted demand for missiles. The defense contractor plans to increase Hellfire missile production to 11,000 per year from 7,000. It also wants PAC-3 missile production to double to meet customer demand.
Lockheed had said missiles and fire control unit to be its fastest-growing business for the next four years. But during the Q3 call, management said it now sees its space division is its fastest-growing business area, with 2021 growth seen in the mid-single-digit range.
Lockheed still sees strong demand for its Hellfire missiles but that it would be flattish year over year.
Lockheed earnings per share growth has averaged 24% over the past three years, according to IBD Stock Checkup. On the revenue side, growth averaged 10% over the last three years.
Analysts see Q4 earnings growth accelerating to 21% with revenue up 7%. For 2020, Wall Street sees EPS up 11.5% and revenue up 9%. Next year, EPS is seen up 7% with revenue up 3.7%.
Technical Analysis For LMT Stock
LMT stock has CAN SLIM fundamental metrics that include a 52 out of a best-possible 99 IBD Composite Rating and an EPS Rating of 94 out of 99. Lockheed is ranked 21st in IBD's Aerospace/Defense group.
After selling off early this year, Lockheed stock is now forming a flat base with a 402.48 entry point, according to MarketSmith analysis. The stock tumbled below its 50-day and 200-day lines as the Covid-19 pandemic rattled the overall market. After finding resistance at those key levels in November, LMT stock has been falling away from them headed into the end of the year.
The relative strength line, another key indicator, is at a five-year low, meaning Lockheed stock has been badly underperforming the broader market.
The Accumulation/Distribution rating is now at D-, indicating that there is net selling of the stock on the part of institutional investors.
Still, the number of funds holding shares has inched up, climbing to 2,053 at the end of Q3, up from 2,042 in Q2 and 2,032 in Q1.
Lockheed Martin Stock News
The F-35 stealth fighter is seen as the "quarterback" in the Pentagon's emerging warfighting strategy to counter near-peer rivals like Russia and China. But its near-term prospects have turned a bit clouded.
In 2019, Lockheed said F-35 sales could follow the older F-16's trajectory of 4,600 jets, representing a jump of more than 40% over current estimates. The F-35 wasn't cleared for full-rate production by late 2019 as expected. But Pentagon acquisition chief Ellen Lord said in August that the DOD is sticking with an earlier March 2021 estimate.
Due to supply chain disruptions and workplace social distancing protocols during the coronavirus pandemic, Lockheed said in May that it would cut production by 18 to 24 F-35s over the next three months. It plans to deliver 140 F-35s in 2020 and 170 in 2021 and 2022.
In September, Lockheed said F-35 deliveries postponed by the pandemic won't fully recover until the end of 2021. While the company's Fort Worth, Texas, plant is back at full speed, its supply chain is taking longer to recover, Lockheed told Aerospace Daily.
Adding to supply issues, Turkey was kicked out of the F-35 program in 2019 over the delivery of a Russian air defense system.
(Lockheed Martin)
As tensions with Iran flare, Gulf allies have been boosting up their fighter arsenals. Following the normalization of diplomatic ties with Israel, the United Arab Emirates got U.S. approval to buy the F-35 as well as armed drones and missiles. In December, the U.S. Senate rejected a motion to block the sales of the F-35 and other weapons to the UAE, allowing the $23 billion deal to go forward.
Meanwhile, the F-16 continues to see more overseas sales potential and Lockheed expects the line producing more than 5,000 fighters, according to Air Force Magazine. In August, the Pentagon issued a contract for the sale of the fighter jet to Taiwan amid rising tensions with China.
As tensions with Iran flare, Gulf allies have been boosting up their fighter arsenals. Following the normalization of diplomatic ties with Israel, the United Arab Emirates got U.S. approval to buy the F-35 as well as armed drones and missiles. In December, the U.S. Senate rejected a motion to block the sales of the F-35 and other weapons to the UAE, allowing the $23 billion deal to go forward.
Meanwhile, the F-16 continues to see more overseas sales potential and Lockheed expects the line producing more than 5,000 fighters, according to Air Force Magazine. In August, the Pentagon issued a contract for the sale of the fighter jet to Taiwan amid rising tensions with China.
Hypersonic Weapons, Space
Lockheed has emerged as a leading developer of hypersonic weapons for the Air Force and the Pentagon's secretive Darpa research arm. It is working on the Hypersonic Air-Breathing Weapon Concept and the Tactical Boost Glide weapon. Lockheed also won a $347 million contract in August to help the Army build new long-range hypersonic weapons.
But the Pentagon canceled Lockheed's Hypersonic Conventional Strike Weapon program in February due to "budget priorities."
Lockheed has emerged as a leading developer of hypersonic weapons for the Air Force and the Pentagon's secretive Darpa research arm. It is working on the Hypersonic Air-Breathing Weapon Concept and the Tactical Boost Glide weapon. Lockheed also won a $347 million contract in August to help the Army build new long-range hypersonic weapons.
But the Pentagon canceled Lockheed's Hypersonic Conventional Strike Weapon program in February due to "budget priorities."
(Lockheed Martin/nasa.gov)
Lockheed sees total hypersonic weapons sales to be $1 billion this year, up from $600 million in 2019. So far, Lockheed has received hypersonic contracts with a total value of roughly $4 billion once finalized.
Lockheed and Raytheon variants of the Hypersonic Air-breathing Weapon Concept (HAWC) have successfully flown captive carry tests and should be ready for powered flight tests soon.
And Air Force acquisition chief Will Roper said Dec. 14 that Lockheed's Air-Launched Rapid Response Weapon will have its first booster test flight this month with production beginning next year.
Lockheed is also looking at next-generation missile defense, including how to expand current ballistic missile defenses to add capabilities to go after hypersonic weapons and other threats.
Lockheed is a subcontractor on Northrop Grumman's (NOC) $13.3 billion Ground Based Strategic Deterrent program, which will replace Boeing's (BA) aging land-based Minuteman III intercontinental ballistic missiles. The total program is valued at $85 billion-$100 billion.
On the civilian side, the company's secretive Skunk Works unit is developing the X-59 for NASA to be a quieter supersonic jet. The technology could reopen the door to future supersonic flight over land on a commercial level, depending on community response to the X-59 missions, with the first flights poised for 2021.
According to NASA, the X-59 is shaped so that supersonic shock waves do not coalesce together to create sonic booms.
With space a top growth area for Lockheed in 2021, CFO Ken Possenriede said during the Q3 call that Elon Musk's SpaceX is "more than an emerging threat right now."
On Dec. 20, Lockheed announced it would buy Aerojet Rocketdyne in an estimated $4.4 billion deal to boost its hypersonic and space offerings. The integration with Aerojet could lower costs in an increasingly competitive space market and boost its hypersonic weapons offerings.
Aerojet is providing engines for NASA's massive Space Launch System and is a subcontractor on Northrop's Air Force deal to develop new intercontinental nuclear missiles worth $85 billion-$100 billion. The Air Force said its research lab and Aerojet recorded the highest thrust produced by an air-breathing scramjet hypersonic engine in a November test.
In August, SpaceX and United Launch Alliance, a Lockheed-Boeing joint venture, both received five-year Pentagon launch contracts and will split more than $5 billion 40%-60%, respectively.
Possenriede said that ULA "has a price point that is "compelling to customers" that will allow it "to get its fair share of awards over SpaceX."
Lockheed also is developing the deep-space Orion spacecraft for NASA as the Trump administration focuses on heading back to the moon by 2024. But NASA's ambitious plans rely on Boeing's SLS rocket, which is behind schedule and over budget.
Lockheed and other companies have partnered with Amazon (AMZN) CEO and founder Jeff Bezos' Blue Origin space company to develop a lunar lander.
Lockheed sees total hypersonic weapons sales to be $1 billion this year, up from $600 million in 2019. So far, Lockheed has received hypersonic contracts with a total value of roughly $4 billion once finalized.
Lockheed and Raytheon variants of the Hypersonic Air-breathing Weapon Concept (HAWC) have successfully flown captive carry tests and should be ready for powered flight tests soon.
And Air Force acquisition chief Will Roper said Dec. 14 that Lockheed's Air-Launched Rapid Response Weapon will have its first booster test flight this month with production beginning next year.
Lockheed is also looking at next-generation missile defense, including how to expand current ballistic missile defenses to add capabilities to go after hypersonic weapons and other threats.
Lockheed is a subcontractor on Northrop Grumman's (NOC) $13.3 billion Ground Based Strategic Deterrent program, which will replace Boeing's (BA) aging land-based Minuteman III intercontinental ballistic missiles. The total program is valued at $85 billion-$100 billion.
On the civilian side, the company's secretive Skunk Works unit is developing the X-59 for NASA to be a quieter supersonic jet. The technology could reopen the door to future supersonic flight over land on a commercial level, depending on community response to the X-59 missions, with the first flights poised for 2021.
According to NASA, the X-59 is shaped so that supersonic shock waves do not coalesce together to create sonic booms.
With space a top growth area for Lockheed in 2021, CFO Ken Possenriede said during the Q3 call that Elon Musk's SpaceX is "more than an emerging threat right now."
On Dec. 20, Lockheed announced it would buy Aerojet Rocketdyne in an estimated $4.4 billion deal to boost its hypersonic and space offerings. The integration with Aerojet could lower costs in an increasingly competitive space market and boost its hypersonic weapons offerings.
Aerojet is providing engines for NASA's massive Space Launch System and is a subcontractor on Northrop's Air Force deal to develop new intercontinental nuclear missiles worth $85 billion-$100 billion. The Air Force said its research lab and Aerojet recorded the highest thrust produced by an air-breathing scramjet hypersonic engine in a November test.
In August, SpaceX and United Launch Alliance, a Lockheed-Boeing joint venture, both received five-year Pentagon launch contracts and will split more than $5 billion 40%-60%, respectively.
Possenriede said that ULA "has a price point that is "compelling to customers" that will allow it "to get its fair share of awards over SpaceX."
Lockheed also is developing the deep-space Orion spacecraft for NASA as the Trump administration focuses on heading back to the moon by 2024. But NASA's ambitious plans rely on Boeing's SLS rocket, which is behind schedule and over budget.
Lockheed and other companies have partnered with Amazon (AMZN) CEO and founder Jeff Bezos' Blue Origin space company to develop a lunar lander.
Bottom Line On LMT Stock
Lockheed is part of the aerospace/defense group, and its earnings growth is solid, if not spectacular.
The massive Pentagon budget continues to enjoy bipartisan support in Congress, though the pandemic and oil price crash loom over prospects for foreign sales.
Bottom line: LMT stock is not a buy. Shares are forming a base but haven't yet reached a buy point. The stock is underperforming the broader market. Growth is expected to slow in the coming year as well, though the company is leading in key weapons development priorities.
Lockheed is part of the aerospace/defense group, and its earnings growth is solid, if not spectacular.
The massive Pentagon budget continues to enjoy bipartisan support in Congress, though the pandemic and oil price crash loom over prospects for foreign sales.
Bottom line: LMT stock is not a buy. Shares are forming a base but haven't yet reached a buy point. The stock is underperforming the broader market. Growth is expected to slow in the coming year as well, though the company is leading in key weapons development priorities.
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