Lockheed Martin Stock Forecast: LMT Ready for Takeoff

Source: Lockheed Martin
Whitney
The article was written by Whitney Su, a Financial Analyst at I Know First.

“…we remain focused on performing with excellence for customers, and our record backlog and differentiating portfolio have us well-positioned for continued growth and long-term value creation for shareholders.” Marillyn Hewitt, CEO, Lockheed Martin, Inc.

Summary:

  • Escalating political tensions globally lead to interest in military F-35 purchases
  • First quarter of 2019 saw an overall 23.3 percent increase in revenue compared to Q1 2018
  • Innovative technologies and solutions will drive company’s growth in the years to come
  • Current bullish I Know First long-term stock forecast for Lockheed Martin

Lockheed Martin is one of the biggest aerospace & defense technology companies in the world, generating a revenue of $53.8 billion dollars in 2018 alone, an increase of nearly 3.8 billion dollars from the 50-billion-dollar revenue of 2017. Revenue trends for LMT are expected to be on the up and up for the years to come as they have been since 2014, as demand for quality services and products to address the security needs of world governments and militaries increases. The four main sectors of the company (1) Aeronautics, (2) Missiles and Fire Control, (3) Rotary and Mission Systems, and (4) Space all demonstrated exceptional performance in the first quarter of 2019 and are all expected to contribute to the improved financial outlook for 2019. Backlog orders for Q1 grew to a new record level, 133.5 billion dollars, indicating the strength provided by the company’s broad portfolio of products and services.

The first quarter saw net sales of $14.3 billion, with net earnings of $1.7 billion ($5.99 per share).  Generated cash from operations of $1.7 billion achieved a record backlog of $133.5 billion. As a result of these promising exceptional Q1 metrics, the company is optimistic and has increased its 2019 outlook for all financial metrics as shown below. According to CEO Marillyn Hewson “This performance from across the corporation and expectations for the remainder of 2019 enable us to increase our full year outlook for sales, operating profit, earnings per share and cash from operation.”

Source: Lockheed Martin

Increased volume of sales worldwide is expected to continue LMT’s trend of upward revenue for the upcoming years.

Lockheed Martin F-35s Spearhead Revenue

Lockheed Martin Corporation reported Q1 net sales of $14.3 billion, compared to $11.6 billion in the first quarter of 2018. This increase in quarterly revenue was large attributable to aeronautics sales, in particular F-35s.

Aeronautics’ net sales in the first quarter of 2019 increased $1.2 billion, or 27 percent, compared to the same period in 2018, the largest percentage increase among the four divisions of the company. The past quarter saw higher net sales of approximately $910 million for the F-35 program due to increased volume on production, sustainment and development programs.

Critics of the F-35 program may claim that the F-35 fighter jets are not worth all the hype. The plane is high in cost (F-35A: $89.2M; F-35B: $115.5M F-35C: US$107.7M) and doesn’t possess out of ordinary features in flight performance, such as the ability to super cruise as expected and reach a flight altitude of above 60,000 feet. Additionally, critics claim that the plane is incapable of performing agile maneuvers in a dogfight.

Source: Naval Aviation News

However, despite the critics, there are numerous reasons why F-35 is the fighter plane of choice by many militaries around the world. Firstly, it should be kept in mind that the F-35 isn’t designed to be a dogfighter, it is designed to attack. The F-35 is one of the most innovative military machines ever made, and one of only three fifth-generation fighters in the world. Although the definition of a fifth-gen fighter is still quite loose, it typically covers the aircraft’s ability to evade radar (stealth) and having the latest avionics and systems which enhance the pilot’s situational awareness. The F-35 Lightning II, F-22 Raptor and China’s Chengdu J-20 are the only active fifth-generation fighters in the world. Out of the three, the F-35 is hailed to have the most advanced features of any aircraft. It has one of the best AESA (Active electronically scanned array) radars and has IRST (Infra-red search and track) capability, along with lethal BVR (Beyond Visual Range) capability. It is also important to know that with 5th gen WVR (Within Visual Range) missiles, there probably is no need left for performing an actual dog fight, since the off-bore capability on such missiles to attack the target at very “tight” angles is becoming very impressive. Off-bore WVR missiles are the future and a plane going to skies without it will possibly not survive. Even if an F-35 was to find itself in a dog fight with not enough power and speed and agility, its off-bore WVR missiles will be able to make up for its own incapability.

Further developments for the F-35s include: upgraded engine (P&W is working on that for 2020 timeframe), lasers, and an ever-lowering price-tag. The F-35 will become an undeniable force in the near-future. Therefore, it is no surprise we see many world governments putting in orders for the F-35s.

This past quarter, the Dutch Air Force announced plans to acquire 37 F-35 jets in the upcoming years, in support of its role as a sustainment hub in the European region. The Netherlands has been an F-35 partner since the plane’s inception and continues to be a strong advocate for the program. In 2018, Australia, Japan, and the United Kingdom each marked the home basing of their first F-35s. LMT also rolled off the assembly line the first F-35s for South Korea and Turkey. And in 2018, Belgium chose the F-35 as its fighter of the future. More nations are expected to follow suit and equip their military with the highly-sought after F35s and other jet fighters. The opening of the new 65,000 square foot Lockheed Martin parts manufacturing plant in Pinellas Park, Florida, expansion of the facility in Johnstown, Pennsylvania, specializing in finishing work, and the shift in F-16 production to Greenville, South Carolina, to allow for the Fort Worth, Texas, facility to produce a higher volume of F-35s, these changes all reflect this anticipated increase in demand for F-35s in the foreseeable future.

Source: Air Force Reserve Command

Regardless of sales abroad, it is no secret that the US is the biggest acquirer of F-35 jets. Operating profit increased approximately $105 million for the F-35 program compared to the first quarter of 2018. The rise of China in the Asia-Pacific region has led to America’s desire to assert itself on the world stage to counter growing Chinese influence worldwide. China and the United States are increasingly becoming geopolitical adversaries as well as economic rivals, and we can expect America to rapidly upgrade its military as a response to this threat. In February, the US Navy declared initial operational capability (IOC) for its fleet of carrier-variant F-35, deeming the F-35Cs are ready for combat. Preparations can now begin for the first carrier deployment aboard the USS Carl Vinson, marking the first time in over half a century the U.S. Marine Corps, Navy and Air Force will all be mission-ready and combat-capable with the same family of fighter jets, a tremendous achievement for the entire F-35 team, and LMT can expect orders to come in from the US military for F-35 fighter jets to come in as a result. The long-range cost estimate for operating the fleet from 2011 to 2077 is estimated to be around $1.196 trillion.

Source: Wikipedia

Lockheed Martin: Missiles and Firearms

Growth in Missiles and Fire Control sales was largely due to deliveries of tactical and strike weapons, particularly in the Precision Fires organization. PAC-3 missiles grew from last year. In the first quarter of 2019, LMT received a contract award for over $1.1 billion from the U.S. Army for lot 14 of Guided Multiple Launch Rocket System munitions and associated equipment. Demand for this program has increased significantly, both domestically and internationally, and LMT now anticipates delivering nearly 5x the number of rockets and launcher pods this year compared to just two years ago.

Source: Wikimedia

Amidst growing tensions with Iran, with President Trump labeling the Iranian Revolutionary Guards, an arm of the Iranian military, as a “terrorist organization” (the only time the US has ever labeled a has named part of another nation’s government as being such), we see the Kingdom of Saudi Arabia going through with the first and second tranche of orders to procure Terminal High Altitude Air Defense (THAAD) air and missile defense system. In March, LMT received the initial order for over $900 million for initial tooling and front-end procurement items. And on April 1, just after the quarter closed, LMT was awarded a second order for approximately $2.5 billion to supply interceptors and equipment to support KSA and U.S. government THAAD batteries. These orders are the most recent actions following the U.S., Saudi Arabia announcements in 2017 and support the beginning of the development and deployment of the 7 planned Kingdom of Saudi Arabia THAAD battery installations.

Lockheed Martin: Rotary and Mission Systems

Rotary and Mission Systems saw a continued strong interest from several international customers this quarter. A $200 million award was received from the Japan Maritime Self-Defense Force for development and integration of the Aegis Weapon System on new Japanese ships.  Additionally, RMS’ Sikorsky line of business was awarded a contract from Poland to build 4 S-70s, the international BLACK HAWK helicopter variant, for the country’s special operations forces missions.  Keeping with Sikorsky, the State Department announced a potential $2.6 billion Foreign Military Sale to India for 24 MH-60R SEAHAWK helicopters. Once definitive, this contract will deliver unparalleled anti-submarine warfare and anti-surface weapon capabilities to the government of India.

Lockheed Martin: Space

United Kingdom’s Ministry of Defense (MoD) awarded LMT a contract worth approximately $3.6 billion to oversee the operation of the MoD’s atomic weapons establishment sites for another 3 years. An order of $800 million was also received from the U.S. Navy to design, develop, build and integrate technologies to support the flight test demonstration of a new hypersonic boost glide weapon system.

Conclusion

CEO Marillyn Hewson is optimistic. “Exceptionally strong results this quarter, financially, strategically and operationally…reflect the quality of our workforce, the strength of the corporation and the focus we all have on delivering value to our customers and stockholders” said Marillyn Hewson. Alongside the contracts mentioned, in the event that “they bail on their orders or due to budget issues do not go through with supposed orders”, the company has other “small ventures” (relatively speaking): developing package-sorting systems for the Post Office, highway/street monitoring and ticketing systems, fingerprint identification systems for the FBI, and large-scale IT systems and management, etc. that are very much in demand. Lockheed Martin does work for more than two dozen government agencies, from the Department of Defense and the Department of Energy to the Department of Agriculture and the Environmental Protection Agency. Therefore, LMT is a must-add to any portfolio. LMT consistently performs well against the S&P 500, reassuring investors of the strength and capability of company leadership. Hewson is confident about the future growth potential of Lockheed Martin. CNN Business analysts project a median stock price of 371.00 and a high of 405.00 for the coming 12-month period. This is in good agreement with the long-term bullish I Know First forecast.

Source: Yahoo Finance

Financial analysts at Yahoo Finance give LMT a buy rating for the upcoming quarter.                

Source: Yahoo Finance

Current Bullish I Know First Forecast

The I Know First machine learning algorithm currently has a positive outlook for LMT. The stock is bullish over the 1 month, 3 months and a year horizon. It is most bullish for the 1-year period with a signal of 250.08 and predictability indicator of 0.58.

How to interpret this diagram.

Past I Know First Success with LMT

On 17 July 2017, I Know First published a bullish forecast on LMT. Since then, the stock price has rocketed by over 18.8% to 346.70 as of 4 June 2019, showing another success of I Know First algorithm in forecasting stock movement.

Lockheed Martin
Source: Yahoo Finance

This bullish LMT stock forecast was sent to the current I Know First subscribers on 17 July 2017.

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