Lockheed Martin: Robust Backlog Points To Sustained Growth

Core Viewpoint - Lockheed Martin (NYSE:LMT) presents a solid buying opportunity due to increased demand for its products driven by ongoing geopolitical conflicts, a record backlog of $160.57 billion reported in Q4 2023, and an attractive price-to-earnings (P/E) ratio [2]. Group 1: Backlog and Demand - The current backlog for Lockheed Martin stands at $160.57 billion, reflecting strong demand for its advanced defense technology solutions [2]. - The Aeronautics division has outstanding orders exceeding $60 billion, with significant demand for F-35 and F-16 fighter jets from the U.S. and allied nations [2]. - The Missiles and Fire Control division has over $32 billion in business, while the Rotary and Mission Systems division has a backlog of nearly $38 billion [2]. Group 2: Financial Projections - Analysts project a slight decline in earnings per share (EPS) to $26.0 in fiscal year 2024, a decrease of 6.55% year-over-year, followed by steady growth, with EPS expected to reach $30.88 by fiscal year 2027, representing a compound annual growth rate (CAGR) of approximately 6% [4]. - The long-term growth rate is estimated at 3.5%, based on a return on capital employed (ROCE) of 35% and a reinvestment rate of 10%, with an additional inflation adjustment leading to a notional growth rate of about 5.5% to 6.5% [5]. Group 3: Valuation and Returns - Lockheed Martin's current P/E ratio is 17.15x, providing an owner's earning yield (OEY) of approximately 5.8% [5]. - The expected total return, before inflation, is projected to be in the 9%+ range, potentially exceeding 10% when accounting for inflation [5][6]. Group 4: Competitive Landscape - Lockheed Martin faces competition from other defense contractors, which could impact profit margins, but it maintains a strong competitive position due to its technology and customer relationships [9]. - The company's reliance on the F-35 program is a notable risk, as delays or issues could disproportionately affect revenue compared to peers with more diversified portfolios [8].