Lockheed Martin Corp. (LMT) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Lockheed Martin Corp. (LMT). Below are some highlights from the above linked analysis:

Company Description: Lockheed Martin Corp., the world’s largest military weapons manufacturer, is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

LMT is trading at a discount to 2.) and 3.) above. Since LMT’s tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a slight premium to its calculated fair value of $336.95. LMT did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
LMT earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. LMT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1995 and has increased its dividend payments for 19 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $1,458 is below the $1,600 target I look for in a stock that has increased dividends as long as LMT has. The stock’s current yield of 3.07% exceeds the 2.74% estimated 20-year average MMA rate.

Peers: The company’s peer group includes: Boeing Co. (BA) with a 0.0% yield, Northrop Grumman Corporation (NOC) with a 1.7% yield and Raytheon Technologies Corporation (RTX) with a 2.5% yield.

Conclusion: LMT did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks LMT as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $331.45 before LMT’s NPV MMA Differential increased to the $1,600 minimum that I look for in a stock with 19 years of consecutive dividend increases. At that price the stock would yield 3.2%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,600 NPV MMA Differential, the calculated rate is 8.5%. This dividend growth rate is higher than 8.2% used in this analysis, thus providing no margin of safety. LMT has a risk rating of 1.25 which classifies it as a Low risk stock.

LMT is the largest defense contractor in the world and dominates next-generation defense platforms. It owns supply contracts for key programs such as the F-35, which assures the company multiple years of revenue. In spite of spending cuts, the company continues to receive contracts from the Dept. of Defense. Going forward, its varied product offerings, operating execution and cost reduction measures will help the company to sustain its profitability.

Since the last review, the company’s free cash flow payout increased to 57%, from 45%. Its debt to total capital also decreased to 15%, from 72%. LMT is trading at a premium to my calculated fair value of $336.95. For now, I will wait for a more opportune time to add to my position.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in LMT (1.7% of my Dividend Growth Portfolio).

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