What we think about Lockheed Martin (LMT)
Lockheed Martin in Three Words: Defense, Dividend, Stealth
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Background
Lockheed Martin classifies itself as a global security and aerospace company engaged in “the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services.” As one of the world’s largest defense contractors, it designs and manufactures everything from stealth fighters and missile defense systems to Black Hawk military helicopters and highly secure communications satellites.
As one of the U.S. Department of Defense’s most valued vendors, the U.S. government will not allow Lockheed Martin to suffer financially. Republican and Democrat politicians have too much at stake to let the company lay off many skilled workers or shutter its manufacturing facilities.
Of course, this ties Lockheed’s growth to the U.S. defense budget, which can fluctuate yearly based on the country’s political climate and involvement in global conflicts. Nearly three-quarters of the company’s top-line revenue comes from the U.S. government, with the vast majority originating from the Department of Defense (DOD).
The prime defense companies enjoy high switching costs resulting in decades-long contract wins and unique intangible economic moats.
Lockheed reported just 2% revenue growth to $17 billion in its most recent third-quarter results, which actually exceeded expectations. The company generated free cash flow of $2.5 billion — which it continued to use to reward investors through a rising dividend and share repurchase program. The Board increased its share repurchase authorization by $6 billion to $13 billion and increased its dividend by 5%. At a recent price of $441, shares now yield 2.7%.
With a backlog of $156 billion already on the books and geopolitical tensions rising, Lockheed represents a safe and dependable long-term investment for any portfolio.
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