Lockheed Martin (LMT) Stock Looks Below Fair Value After 79% Run

Lockheed Martin has delivered a 78.7% share price gain over the past 5 years, and investors now face a clear question about whether that performance lines up with the cash flows that support today’s valuation. With big-ticket defense deals back in the headlines, the issue is how much of that future cash generation is already reflected in the stock.

• Over 5 years the stock is up 78.7%. This puts a lot of focus on whether the current price can be explained by the cash the business is expected to produce over time.
• The planned US$24.3b F-35 sale to Saudi Arabia and the move to accelerate AIM-260 JATM and PAC-3 missile production can influence expectations for Lockheed Martin’s future contract visibility, investment needs and timing of cash inflows.
• Prefer to judge Lockheed Martin on earnings? See what Lockheed Martin's 19.8x P/E says about the price.

The stock’s next move may depend on whether that recent share performance and defense contract activity are fully supported by Lockheed Martin’s underlying cash flows.

If you are weighing Lockheed Martin against other defense and infrastructure plays tied to long-term projects and capital spending, it can help to compare it with 37 power grid technology and infrastructure stocks.

Is Lockheed Martin a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here is built on the cash the business is expected to return to shareholders over time. Lockheed Martin generated about $8.6b in free cash flow over the last twelve months, and the DCF framework extends that figure using a 2 stage pattern that keeps growth in free cash flow positive but relatively measured over the coming decade.

That profile suits a mature contractor that relies on large, long duration programs rather than rapid swings in demand. The projected cash flows support an estimated intrinsic value that the DCF suggests is substantially above the current share price of $538.09. Because the planned US$24.3b F 35 sale to Saudi Arabia would add further long term program visibility if it proceeds as outlined, the discount implied by the DCF helps explain why some investors focus more on the cash generation runway than on near term headlines. Find out what Lockheed Martin could be worth using our Discounted Cash Flow (DCF) estimate.

The Lockheed Martin Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Lockheed Martin pick up where the DCF puzzle leaves off by spelling out which assumptions about future growth, margins and earnings would need to hold for the shares to be worth materially more or materially less than today’s price, all housed on the Community page. Each narrative links a specific valuation outcome to a clear story about Lockheed Martin's potential catalysts and key risks so you can track which version of events is unfolding over time.

Community views on Lockheed Martin are split between those who see more headroom in the backlog story and those who think the stock already reflects most of that.

Bull case: 15% undervalued

"Demand for advanced platforms such as the F-35, PAC-3, THAAD, and hypersonic weapons is being reinforced by actual combat use and rising geopolitical tensions…"

Discover why this Narrative puts Lockheed Martin at 15% undervalued.

Bear case: roughly fairly valued

"Persistent cost overruns and newly identified reach-forward losses on legacy and classified programs highlight ongoing supply chain pressures and potential future margin compression…"

Explore why this Narrative puts Lockheed Martin at roughly fairly valued.

One more Lockheed Martin factor worth checking before you move on

Valuation only tells part of the Lockheed Martin story, and recent research has also surfaced specific risk checks that deserve a close look before drawing any conclusions about the stock. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com