For years, investing in defense and aerospace paid off but that changed in the last year. Certification delays for the 737 MAX, made by Boeing (NYSE:BA), is clouding the airplane industry. It is also casting a shadow in well-run companies like Lockheed Martin (NYSE:LMT). The detail-oriented investor will look at the whole picture and realize that LMT stock, which spent much of the last few months in the $400 range, is on the verge of a break-out.
Late last week, Lockheed management announced a few shareholder-friendly moves. This could help shares rebound from here.
Lockheed declared a $2.60 per share dividend, 20 cents higher than last quarter. Shareholders of record as of the close of business on Dec. 1, 2020, will collect the distribution.
The corporation’s board also authorized the buyback of another $1.3 billion of Lockheed stock. The total authorization for future repurchases is now around $3 billion.
Stock buybacks benefit investors because it lowers the share count and increases the earnings per share. In the second quarter, Lockheed posted revenue of $16.22 billion, up 12.43% from last year. Cash from operations topped $2.2 billion, while net earnings topped $5.79 per share.
“I’m pleased to see continued strong operational and financial results this quarter as we remain focused on performing with excellence for our customers,” said Chief Executive Officer James Taiclet.
A Closer Look at LMT Stock
Given the favorable low-interest-rate environment, the company may re-evaluate its debt and go to the debt market to refinance. That would cut interest costs.
To lighten the cost burdens for governments, Lockheed said it cut its share of the F-35’s sustainability cost per flying hour in the last five years.
The 40% drop in costs is a result of its investments in building tools and analytics to increase labor efficiency. By embracing machine learning and artificial intelligence, investors do not need to buy technology stocks. Instead, they may invest in Lockheed, which applies the tech tools to save on costs.
At the end of Q2, Lockheed added nearly $22 billion in orders. Its backlog is now at a new high of over $150 billion. $7 billion of the backlog is for F-35 orders.
A Look at the LMT Chart
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Source: Chart courtesy of StockRover.com
Lockheed failed to rally alongside the market rally that began in March. Although shares bounced back from the $340 low, the stock is stuck in a narrow trading range.
Markets are pricing in the political uncertainties ahead of the U.S. elections. Whichever party wins, defense spending may vary by a wide margin. So, if the U.S. government slashes budgets, Lockheed’s stock may underperform for several quarters.
On Wall Street, the average price target is $436.50 (per Tipranks). Conversely, a fair value assessment, based on future cash flow, suggests the stock is worth almost $460:
Lockheed has a good value score of 79/100, as shown above. Its growth score of 96/100 is even better. Regardless of the election outcome, the company’s growing backlog will cushion any near-term order delays.
Plus, the near-term deal between the U.S. and Taiwan may add $7 billion in defense spending. As a leader in defense, Lockheed will win more business and increase its growth in the next year.
The Bottom Line on LMT Stock
Taiwan may become the center of focus as tensions between the U.S. and China mount. And that will lead to Taiwan’s need for more military equipment. To protect itself against China’s increasing influence, other Asian nations may increase military spending.
Under-performing in the last few quarters, Raytheon (NYSE:RTX) shares pay a dividend whose yield is around one percent higher than that of Lockheed’s stock. Northrop Grumman (NYSE:NOC) has a lower debt-to-equity ratio of 1.65 times, compared to 3.38 times for Lockheed.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.