With nearly $45 billion in annual sales,
stock is easily the biggest pure-play defense stock on the
planet. Lockheed Martin sells 33% more military equipment in a
year than does chief rival
. According to data from
, it sells 60% more than do either of Europe's
(roughly $28 billion apiece).
But is bigger better?
Today we're going to take a quick look at Lockheed Martin not
from the perspective of it's being the biggest defense business
on the planet (which it clearly is). Instead, we'll be asking
whether Lockheed Martin
is likely to turn into a successful investment for small
investors like you and me.
In short, is Lockheed Martin stock one you can ride to riches?
Let's find out.
This looks like a "UFO" -- so let's identify it. This is Lockheed
Martin's F-35B fighter jet, making its first-ever nighttime
vertical landing (aboard the USS Wasp). Photo:
The last manned fighter jet
Roughly four years ago, I argued that when building a portfolio
of stocks to hold for the long term, investors would be well
advised to reserve a slot in that port for Lockheed Martin stock.
And how have the shares fared since then? They're
up more than 140%
Probably the biggest reason for this rise is investor optimism
over the prospects for Lockheed Martin's fifth-generation fighter
jet, the F-35 Lightning II. At last report, Lockheed had
delivered at least 104 of the $100 million-plus just fighters to
its customers, and over the next six decades, Lockheed plans to
more than 3,100
F-35s for the U.S. and its allies -- perhaps
Conservative estimates suggest that between the price of the
airplanes themselves, and the revenues Lockheed will reap from
maintaining and servicing them, Lockheed could ultimately reap as
much as $1.3 trillion from this program. Over 60 years, that
works out to more than $21 billion a year in F-35 revenue, which
is enough money to fill up nearly half of Lockheed's annual
revenue stream -- and that's if the jets' unit cost falls to its
anticipated $80 million. If customers remain willing to pay
prices as high as twice that sum, however (as South Korea
recently agreed to do in its F-X fighter jet contract), the F-35
could be worth even more money to Lockheed.
The icing on the cake? Lockheed Martin just might have the jet
fighter market to itself -- forever.
Admiral Mike Mullen
, former chairman of the U.S. Joint Chiefs of Staff, predicted
that the F-35 will be America's "last manned fighter" jet. If he
turns out to be right about that, and if Lockheed Martin never
again has to worry about competing with another rival for
(non-drone) aircraft, then Lockheed quite literally has
a "lock" on the fighter jet market
Green energy from a defense contractor? Sure! Why not? Source:
Lockheed Martin is not afraid to try new things
Lockheed Martin's F-35 franchise insulates the company, to an
extent, from the slowdown in defense spending that other defense
contractors have endured of late. But Lockheed isn't resting on
its laurels. F-35s notwithstanding, the company saw its revenues
still tumble 3.9% in 2013 -- and that's not a trend Lockheed
Martin management wants to see continue.
Fortunately for Lockheed, the company boasts a balance sheet
not overburdened by debt, and strong free cash flows ($4.1
billion over the past year) that it can deploy to grow new
businesses -- businesses that may one day yield the kind of
revenues that Lockheed may need to replace a shrinking defense
In recent months, we've seen
Lockheed plant seeds
in fields ranging from green energy (such as the "OTEC" oceanic
energy station pictured above), to desalination, to natural gas
storage (the company's trying to parlay its expertise in rocket
fuel tanks into a business building liquefied natural gas storage
tanks), to promoting
robotics for the civilian industry
To date, the revenues from such ventures remain minimal. But
at least Lockheed is trying -- and the more things it tries, the
greater the chance that Lockheed Martin will one day hit upon the
"next big thing" idea that generates real revenues for its
The power of low expectations
Probably the best reason to wonder whether Lockheed
Martin stock might surprise us and keep growing, though --
topping its past year's 40% rise, and even the 140% gain since
September 2010 -- is the most counterintuitive: No one expects
this to happen, and a lot of folks will be surprised if it
In each and every one of the past four quarters, Lockheed
trumped analyst expectations
for how much profit it can earn in an era of declining defense
sales. On average, Lockheed Martin's profits for the past four
quarters have exceeded estimates by about 9%.
Lockheed has achieved this feat in part by deploying its cash
flows to buy back stock, reducing its share count, and
"concentrating" profits among fewer shares. Since 2009, in fact,
Lockheed Martin's share count has fallen by more than 15% --
including a 1.25% shrinkage since just the end of last year. But
the company has also done a superb job of controlling costs, and
squeezing more profitable pennies out of each revenue dollar it
Over the past 12 months,
data shows that Lockheed Martin's gross profit margin topped
11.2%. That's the best number Lockheed Martin has produced --
ever -- going back as far as S&P Capital IQ keeps such
records (the year 1992).
It gets an investor to wondering: Maybe, just maybe, the
reason Lockheed Martin stock is up so much over the past year is
that it deserves to be. And maybe it will even go up a bit
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On the wings of the F-35, Lockheed Martin stock is flying high.
3 Reasons Lockheed Martin Corporation's Stock
originally appeared on Fool.com.
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