Lockheed Martin stock (NYSE:LMT) presents a compelling investment opportunity during the ongoing geopolitical unrest. As the aerospace and defense giant behind the renowned F-35 fighter jet, C-130 Hercules transport aircraft, HIMARS, and numerous other cutting-edge weapons systems, Lockheed Martin is exceptionally well-positioned to leverage this instability to fuel growth. With rising defense budgets and a steady stream of contract wins building momentum, I remain bullish on LMT stock.
Rising Geopolitical Tensions: A Growing Concern (or Opportunity)
If you pay attention to global news, you’ve likely observed the swift escalation of geopolitical tensions worldwide since early 2022. Several significant conflicts have erupted, with the looming prospect of more emerging as global tensions continue to mount daily. Notably, enduring conflicts like the ongoing war in Ukraine and the Israel-Hamas conflict have not only persisted but also contributed to broader global instability. For example, the possibility of a Chinese invasion of Taiwan appears more likely than ever.
While this is undoubtedly distressing for all those affected by these unfortunate situations, not everyone views it negatively. Global defense firms are capitalizing on the situation as defense spending skyrockets. One such example is Lockheed Martin. As one of the largest aircraft and other military systems suppliers to the U.S. and its allies, it stands out as a major beneficiary in this rapidly evolving terrain. The company posted record revenues of $67.6 billion last year, with further gains expected this year.
Let’s take a closer look.
FY2024: Global Instability to Power Another Year of Record Sales
Following a strong performance in FY2023, Lockheed Martin appears poised to achieve another year of record sales in FY2024. According to Lockheed Martin’s management during the company’s post-earnings Q1 conference call, the approved defense budget for this year contains several favorable elements for the defense giant.
Noteworthy aspects include significant funding for munitions, multi-year procurement, investments in hypersonics and classified projects, and continued support for key programs like the Black Hawk, fleet ballistic missile, C-130, CH-53K heavy-lift helicopter, and F-35. Additionally, supplementary allocations were made for F-35 aircraft, C-130, and combat rescue helicopters beyond the initial budget submission.
The House’s recent approval of $95 billion in supplemental defense spending in late April, committed to Ukraine, Israel, and Indo-Pacific security, is also of particular importance. This extra funding suggests that Lockheed Martin is going to enjoy a sustained tailwind for the foreseeable future and that ongoing sales boosts don’t constitute one-off benefits.
Lockheed Martin’s first-quarter results highlighted the significant momentum the company continues to experience. Net sales reached $17.2 billion in Q1; this marked a record first-quarter sales figure for the company, reflecting a robust 13.7% increase compared to last year. The growth was widespread across all divisions: Aeronautics sales rose by 9%, Missiles and Fire Control saw a strong 25% increase, Rotary and Mission Systems reported a 16% growth in sales, while the Space division saw a notable 10% sales uptick.
Moreover, Lockheed Martin closed the quarter with an impressive backlog of $159.4 billion, ensuring stable cash flows and growth for the remainder of the year. This also provides strong visibility heading into FY2025. Consequently, Wall Street anticipates the company to achieve record sales of approximately $69.7 billion in FY2024, reflecting a year-over-year increase of about 3.1%. FY2025 sales are also expected to rise further to $72.3 billion.
Is LMT Stock Fairly Valued?
Lockheed Martin stock has traded relatively flat over the past year. Investors might be pondering whether all these geopolitical turmoil tailwinds have already been priced in on the stock. Nevertheless, I believe that shares continue to remain attractively priced. Analysts anticipate the company will achieve earnings per share (EPS) of $26.22 for the year, translating to a price-to-earnings (P/E) ratio of 17.8x.
This valuation aligns closely with Lockheed’s historical average, and given the current overly favorable industry tailwinds the company is experiencing, it presents an attractive opportunity in my book.
Is LMT Stock a Buy, According to Analysts?
Regarding Wall Street’s view on the stock, Lockheed Martin features a Hold consensus rating based on three Buys, nine Holds, and one Sell rating assigned in the past three months. At $486.85, the average LMT stock forecast suggests 3.1% upside potential.
If you’re unsure which analyst you should follow if you want to buy and sell LMT stock, the most accurate analyst covering the stock (on a one-year timeframe) is Charles Minervino of Susquehanna, with an average return of 11.94% per rating and an 85% success rate. Click on the image below to learn more.
The Takeaway
Overall, as geopolitical tensions rise, Lockheed Martin seems positioned for another year of growth. With increasing global defense spending and the company’s role as a supplier of critical aircraft and weapons systems for the U.S. and its allies, Lockheed is set to achieve record revenues not only this year but potentially next year as well. The company’s extensive backlog ensures strong forward visibility in its operations, strengthening the accuracy of these projections.
In the interim, shares seem reasonably priced. Lockheed Martin’s forward P/E matches its historical average, even though the current industry landscape could have resulted in a much more significant valuation premium. Thus, the stock appears to offer a compelling opportunity for bullish investors at its current levels.
