Lockheed Martin (NYSE: LMT) scored a tidy win at the end of March, when the Canadian government announced that it would be purchasing 88 F-35 fighter jets to revamp its out-of-date air force.
The Canadian government has spent decades researching and evaluating different options for its new fleet of military aircraft, and though final negotiations have yet to take place, the recent announcement is another big win for LMT, which is no stranger to large military contracts.
The projected $19-billion deal is worth just a bit more than the $17.7 billion in revenue LMT earned in Q4 2021.
The U.S.-based defense, aerospace, arms, and technology giant has seen its stock price rise about 25% in 2022, with a noticeable jump around the time Russia invaded Ukraine near the end of February.
Given that rising tensions have implored governments around the world to step up their military spending, there is plenty to like regarding LMT stock going forward, along with a fruitful and reliable dividend.
Nevertheless, the stock is trading near all-time highs, and insiders have been on quite a selling streak over the last little while.
For that reason, I am neutral on the stock.
Recent Results
Lockheed Martin released its Q4 and FY-2021 results on January 25.
Q4 revenue increased 4.1% year-over-year, and full-year revenue of $67 billion was a 2.5% increase over FY 2020.
Of the company’s four business segments (Aeronautics, Missiles & Fire Control, Rotary & Mission Systems, and Space), Space was the only one not to produce a year-over-year increase in Q4 operating profit. It dropped from $368 million to $308 million.
A large part of this was due to the UK nationalizing its Atomic Weapons Establishment in June 2021, a nuclear weapons program of which LMT previously owned 51%. Lockheed Martin estimates that it missed out on $535 million in sales due to the decision.
The year-over-year operating profit increases in Q4 for Aeronautics, Missiles & Fire Control, and Rotary & Mission Systems were 12.8%, 17.1%, and 10.3%, respectively.
Lockheed Martin is a mature company, but its 2.5% growth in yearly revenue pales in comparison to the increases it posted in each of the previous years (9.3% in 2020, 11.3% in 2019, and 7.6% in 2018).
The company is actually predicting a slight decrease for FY 2022, guiding for $66 billion in revenue. Having said that, this guidance was made before the war in Ukraine gave a nudge to military spending globally.
Insider Selling
Thanks to TipRanks’ Insider Trading tool, we can see that several top Lockheed Martin executives have cashed in on the recent splurge in LMT’s share price.
In all, $10.2 million worth of Lockheed Martin stock was sold over the past three months, with over half of that coming in the last month and a bit.
This doesn’t have to be a dark sign for the future. Cash is king, after all, and if you have a chance to cash out $3.5 million in a day by selling some of your shares when a stock hits an all-time high – as Lockheed Martin COO Frank A. St. John did on March 1 – it’s a chance worth taking.
What this might suggest, however, is that shares might have spiked a bit too high in the recent past, and that it might be prudent to wait for a pullback in prices.
Dividend, Valuation
Lockheed Martin spent $7 billion in share buybacks and dividends in FY 2021, and LMT’s $2.80 quarterly dividend delivers a 2.5% yield, well above the sector average of 0.73%.
Looking at two direct competitors, Saab AB (STO: SAAB-B) has a 1.4% dividend yield, and Boeing (NYSE: BA) doesn’t pay a dividend at all.
You could certainly do worse from an income perspective than LMT stock.
Its forward P/E ratio of 16.5 isn’t massively inflated, though it is above its three-year average of 15 and one-year average of 14.
Wall Street’s Take
Lockheed Martin has a Moderate Buy consensus rating on TipRanks, with seven Buys and eight Holds assigned over the past three months.
The average Lockheed Martin price target of $457.87 suggests 2.9% upside potential. Analyst price targets range from $521 per share to $401 per share.
Conclusion
Lockheed Martin is a very large company competing in an industry that won’t be going away any time soon.
While negotiations with the Canadian Air Force have yet to finalize, the deal should bring in a sizable chunk of revenue while perhaps aiding other NATO countries in choosing a jet for their militaries. It helps for an alliance to use similar equipment, given how the mutual understanding of capabilities can help with planning strategic operations.
The company’s dividend and buyback programs reward investors nicely, while its impressive tech and engineering capabilities should help it win more fruitful government contracts in the future.
That said, the share price is rather elevated as much of the recent geopolitical turmoil is likely baked into current trading levels.
There are plenty of riskier and perhaps more profitable plays out there, but LMT stock should be more than capable of providing reliable returns over the long term.
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