Lockheed Martin Corp. LMT recently completed the risk reduction testing for the TPY-4 radar, thereby making progress in the Three-Dimensional Expeditionary Long-Range Radar (“3DELRR”) program. Notably, in February 2022, the U.S. Air Force selected Lockheed as the primary contractor for the 3DELRR program to provide a radar that will perform long-range detection of both air-breathing threats and theater ballistic missiles.
The selection of Lockheed as the provider of the radar under the 3DELRR program, which constitutes a crucial part of the U.S. air surveillance, and the aforementioned progress in the TPY-4 radar fielding surely reflect Lockheed’s proven dominance in the military radar market.
This might encourage investors to add LMT stock to their portfolio. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth prospects as well as risks (if any).
LMT Stock Outperforms Industry, Sector & S&P500
Shares of Lockheed have surged 24.8% in the year-to-date period, outperforming the Zacks aerospace-defense industry’s decline of 5.3%. It has also outpaced the broader Zacks Aerospace sector’s rise of 1.6% as well as the S&P 500’s gain of 18% in the same time frame.
A similar trend can be seen in the performance of other industry players, Embraer ERJ, Leidos Holdings LDOS and RTX Corp. RTX, which have witnessed a surge of 88.6%, 42.1% and 40.2%, respectively, year to date.
LMT’s YTD Performance
Image Source: Zacks Investment Research
What is Driving LMT Stock Up?
Solid order flow for its varied products — ranging from agile fighter aircraft and helicopters to littoral combat ships and space products — from Pentagon as well as the U.S. allies has always played the role of a key catalyst in Lockheed’s growth story. Such order flows culminate into a strong backlog count for the company, thereby bolstering its revenue prospects and instilling investors’ confidence in the stock. Notably, Lockheed’s total backlog came in at a record $158.34 billion as of June 30, 2024.
An increasing defense budget, adopted by the U.S. administration, remains another major growth driver for defense contractors like Lockheed. Notably, the fiscal 2025 U.S. defense budget, which includes funding of $850 billion for the U.S. Department of Defense, reflects an increase of 1% over the fiscal 2024 enacted funding amount. It constitutes continuous funding support for many of Lockheed’s significant programs.
The company’s stable financial position must have also been attracting investors. Notably, Lockheed’s cash and cash equivalents at the end of the second quarter of 2024 totaled $2.52 billion, while its current debt was $0.14 billion. So, it would be safe to conclude that the stock holds a strong solvency position, at least in the near term.
Headwinds to Keep an Eye On
Despite being a prominent defense contractor, Lockheed faces some notable industry challenges. One such challenge is the shortage of skilled labor, which, along with an aging workforce, has become a major cause of concern for aerospace manufacturers like LMT. As aircraft manufacturers have started to ramp up their production rates, labor shortages might affect aerospace stocks like Lockheed.
Moreover, the company has a contract with the Canadian Government for the Canadian Maritime Helicopter Program (“CMHP”) under its Rotary and Missions Systems business segment to provide for the design, development and production of CH-148 aircraft, and offer logistical support to the fleet. This program experienced performance issues, including delays in the final aircraft deliveries from the original contract requirement.
The Royal Canadian Air Force’s flight hours have been significantly less than originally anticipated. This has affected program revenues and the recovery of Lockheed’s costs under this program. As of June 30, 2024, the company’s cumulative losses in relation to CMHP were approximately $100 million.
What Lies Ahead for LMT Stock?
Despite the challenges mentioned above, one may remain optimistic about the company’s near-term growth prospects. A quick sneak peek at its earnings and sales estimates reflects the same.
LMT Stock’s Upbeat Estimates
The Zacks Consensus Estimate for LMT’s 2024 and 2025 sales reflects an improvement of 5.3% and 4%, respectively, year over year.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share reflects an upward movement of 1% and 1.7%, respectively, over the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
LMT Stock Trading at a Premium
In terms of valuation, LMT’s forward 12-month price-to-earnings (P/E) is 20.06X, a premium to its peer group’s average of 19.23X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
Should You Buy LMT Now?
To summarize, investors interested in Lockheed should wait for a better entry point, considering its premium valuation. Also, LMT currently has a VGM Score of C, which is not a very favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's financial stability, upbeat estimates and solid backlog count offer solid future revenue prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
